Companies often need to choose between making an investment now or waiting until the company can gather more relevant information about the

potential project. This opportunity to wait before making the decision is called the investment timing option.

Consider the case:

General Forge and Foundry $Co.$ is considering a three$-$year project that will require an initial investment of $$44,000.$ If market demand is

strong, General Forge and Foundry Co$.$ thinks that the project will generate cash flows of $$28,500$ per year. However, if market demand

is weak, the company believes that the project will generate cash flows of only $$1,750$ per year. The company thinks that there is a $50\%$

chance that demand will be strong and a $50\%$ chance that demand will be weak.

If the company uses a project cost of capital of $12\%,$ what will be the expected net present value $($NPV$)$ of this project? $($Note: Do not round

intermediate calculations and round your answer to the nearest whole dollar.$)$

$-$$$7,672$

$-$$$8,439$

$-$$$6,138$

$-$$$7,288$

General Forge and Foundry Co$.$ has the option to delay starting this project for one year so that analysts can gather more information about whether

demand will be strong or weak. If the company chooses to delay the project, it will have to give up a year of cash flows, because the project will then

be only a two$-$year project. However, the company will know for certain if the market demand will be strong or weak before deciding to invest in it$.$

What will be the expected NPV if General Forge and Foundry Co$.$ delays starting the project? $($Note: Do not round intermediate calculations and round

your answer to the nearest whole dollar.$)$

$$9,517$

$$1,674$

$$1,860$

$$9,532$

What is the value of General Forge and Foundry Co$.\text{'}$s option to delay the start of the project? $($Note: Do not round intermediate calculations and round

your answer to the nearest whole dollar.$)$

$$1,674$

$$9,532$

$$9,517$

$$1,860$