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%.

If this projects 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: value of the option = E[NPV_{with option}] E[NPV] =?]

Year 2 Probability Year 0 0.50 -$28 0.50 Year 1 $55 $22 Probability Year 0 0.50 $0 0.50 Year 1 -$28 -$28 Year 2 $55 $22 Year 2 Probability Year 0 0.50 -$28 0.50 Year 1 $55 $22 Probability Year 0 0.50 $0 0.50 Year 1 -$28 -$28 Year 2 $55 $22