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Investment timing option: left Table shows the investment made now (year 0); right Table shows the investment made 1 year later. Discount rate is r=10%.
Investment timing option: left Table shows the investment made now (year 0); right Table shows the investment made 1 year later. Discount rate is r=10%. Probability Year 0 Year 1 Year 2 0.50 $55 -$28 0.50 $11 Probability Year o 0.50 $0 0.50 Year 1 Year 2 -$28 $55 -$28 $11 If this project's uncertainty in Year 0 (two scenarios with 50% chance each) is completely gone right after the end of year 0, i.e., you will know which scenario turns out to be true right after Year 0, then what is the value of this investment timing option today? [Hint: you have the option of not making the investment if the project is not profitable; discount rate of 10% applies to all cash flows; value of the option = E[NPV with option] - E[NPV] =?] O A. $2 B. $3 O C. -$10 O D. $10 O E. $8 O F. None of the rest is correct
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