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(a) The project costs $200 and has a future cash flows of $42 per year forever. There is as well a possibility to invest into
(a) The project costs $200 and has a future cash flows of $42 per year forever. There is as well a possibility to invest into this project next year. However, next year it will cost $240 because of inflation and the cash flows will be $48 per year forever. If these are the only two relevant options (invest into the project now or in one year) and the appropriate discount rate for this project is fixed at the level of 6% per annum, what should we do? What is the pure value of the option to wait? (b) Consider the case as in (a) but now the appropriate discount rate is 12% per annum. How does this influence your answer regarding the value of the option to wait
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