Excel Online Structured Activity: Investment Timing Option

All American Telephones Inc. is considering the production of a new cell phone. The

project will require an investment of $$15$ million. If the phone is well received, the project

will produce cash flows of $$10$ million a year for $3$ years, but if the market does not like

the product, the cash flows will be only $$1$ million per year. There is a $50\%$ probability of

both good and bad market conditions. All American can delay the project a year while it

conducts a test to determine whether demand will be strong or weak. The delay will not

affect the dollar amounts involved for the project's investment or its cash flows$-$only their

timing. Because of the anticipated shifts in technology, the $1-$year delay means that cash

flows will continue only $2$ years after the initial investment is made. All American's WACC

is $7\%.$ The data has been collected in the Microsoft Excel Online file below. Open the

spreadsheet and perform the required analysis to answer the question below.

Open spreadsheet

What action do you recommend? Do not round intermediate calculations. Round your

answers to the nearest dollar. Use a minus sign to enter negative values, if any.

NPV without waiting: $

NPV of waiting $1$ year: $

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