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4. Investment timing options Companies often need to choose between making an investment now or waiting till the company can gather more relevant information about the potential project. This opporiunity to wait before making the decision is called the investment timing option. Tobotics Inci is considering a three-year project that will require an initial investment of $44,000. If market demand is strong, Tolbotics Inc, thinks that the project will generate cash flows of $29,500 per year, However, if market demand is weak, the company belleves that the project will generate cash flows of only $1,500 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 14%, what will be the expected net present value (NPV) of this project? 58,816 $6,813 $8,015 $6,412 Tolbotics Inc, 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 twoyear project. Hondver, the company will know for certain if the market demand will be strong or weak bufore deciding to invest in it. If the company accepts the project now, it would mean that the company is the option to make a more informed decision. If the value of the option is _ than the value of the project, then the company is more likely to use the option. The time before expiration for the imvestment timing option is one year. Considering these qualitative factors, the company What will be the expected Niy if Tolbotics inc. deiays starting the project? (Note: Use the cost of capital to discount ail cash fiows.) 41,706 {2,007 $10,022 14,014 What is the value of Tolbotics incis option to delay the start of the project? 51,706 $4,014 510,022 52,007