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An investor has just bought a multifamily unit in West LA. If she develops the building today, it will cost her $1 million and she
An investor has just bought a multifamily unit in West LA. If she develops the building today, it will cost her $1 million and she expects to earn $300,000 a year forever from the project. However, if she delays the project by 3 years, there is 40 percent chance that construction costs will come down to $500,000, while there is a 60 percent chance that these costs will only fall to $900,000. In either case, she will earn the same $300,000 forever. If the relevant discount factor is 5%, what is her expected savings if she starts the project today compared to delaying by 3 years? A. $1,099,237 B. $275,091 C. -$907,296 D. $456,214
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