Douglass Engineering is considering a project that has an initial cost today of $22,000. The project has a two-year life with cash inﬂows of $13,500 a year. Should the ﬁrm decide to wait one year to
Commence this project, the initial cost will increase by 4 percent and the cash inﬂows will increase
To $14,200 a year. What is the value of the option to wait if the applicable discount rate is 12
Percent?
A) $0
B) $81.05
C) $123.33
D) $141.41
E) $183.17

Question

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The Answer of Douglass Engineering is considering a project that has an initial cost today of $22,000. The project has a two-year life with cash inﬂows of $13,500 a year. Should the ﬁrm decide to wait one year to
Commence this project, the initial cost will increase by 4 percent and the cash inﬂows will increase
To $14,200 a year. What is the value of the option to wait if the applicable discount rate is 12
Percent?
A) $0
B) $81.05
C) $123.33
D) $141.41
E) $183.17

Douglass Engineering Is Considering a Project That Has an Initial