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Sheehan Inc. is deciding whether to invest in a project today or to postpone the decision until next year. The project has a positive expected
Sheehan Inc. is deciding whether to invest in a project today or to postpone the decision until next year. The project has a positive expected NPV, but its cash flows might turn out to be lower than expected, in which case the NPV could be negative. No competitors are likely to invest in a similar project if the firm decides to wait. Which of the following statements best describes the issues that the firm faces when considering this investment timing option?
A. | The investment timing option would not affect the cash flows and therefore would have no impact on the project's risk. | |
B. | The more uncertainty about the future cash flows, the more logical it is to go ahead with this project today. | |
C. | Since the project has a positive expected NPV today, this means that its expected NPV will be even higher if the firm chooses to wait a year. | |
D. | Since the project has a positive expected NPV today, this means that it should be accepted in order to lock in that NPV. | |
E. | Waiting would probably reduce the project's risk. |
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