Calculating the value of option to wait
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Wilson's Antiques is considering a project that has an initial cost today of $10,000. The project has a two-year life with cash inflows of $6,500 a year. Should Wilson's decide to wait one year to commence this project, the initial cost will increase by 5% and the cash inflows will increase to $7,500 a year. What is the value of the option to wait if the applicable discount rate is 10%?
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Option 1: Start now
Initial outlay=Co=-$10000
Cash inflow in year 1=C1=$6500
Cash inflow in year 2=C2=$6500
Discount rate=r=10%
NPV of ...
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