Consider an investment project with expected gross value equal to 52.5 million and investment cost of 50 million. The opportunity cost of allocating capital to this project is 8% and the current risk-free rate is 4%. The expected standard deviation of the project cash flows is 15%. There are no restrictions regarding the timing to implement the project.

Select one:

1. The embed value of the option to defer is 0.6 million and the project should be

accepted

2. None of the given answers is correct
3. The value of this project is 3.1 million and should be accepted
4. The embed value of the option to defer is 2.5 million and the project should be accepted