Your company is considering purchasing 10 machines, each of which has the following expected cash flows (the entry in B3 of ? $550 is the cost of the machine):

You estimate the appropriate discount rate for the machines as 25%.

a. Would you recommend buying just one machine, if there are no options effects?

b. Your purchase manager recommends buying one machine today and then?after seeing how the machine operates?reconsidering the purchase of the other 9 machines in 6 months. Assuming that the cash flows from the machines have a standard deviation of 30% and that the risk-free rate is 10%, value this strategy.

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A В D E F 2 Year 3 CF of single machine 2 3 4 -550 100 200 300 400