Q5: 20% A) Using the following information, compute NPV if we proceed TODAY as if there is no option

B) Using the real option methodology of ch. 26 (Brigham & Ehrhardt's Financial Management- 15e), should Bert wait a year if the will "know" which cash flow will occur? Compute NPV of waiting! Use WACC to discount ALL cash flows!! Should we "wait" or proceed "now"??

Bert is considering purchase = $17,000 Years project will go on = 20 years WACC = 12% Net Cash Flows = $2,800

If wait one year: Purchase price = $17,500 High cash flow = $3,600 Chance of high cash flow = 55% Low cash flow = $1,400