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4. Investment timing options Companies often need to choose between making an investment now or waiting until the company can gather more relevant information about the potential project. This opportunity to wait before making the decision is called the imvestment timing option. Consider the case: Tolbotics Inc. 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 $29,000 per year. However, if market demand is weak, the company believes that the project will generate cash flows of only $2,000 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 12%, what will be the expected net present value (NPV) of this project? (Note: Do not round intermediate calculations and round your answer to the nearest whole dollar.) $7,111$6,433$7,788$6,772 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. Ir 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. However, the company will know for certain if the market demand will be strong or weak before deciding to invest in it. What will be the expected NPV if Tolbotics Inc. delays starting the project? (Note: Do not round intermediate calculations and round your answer to the nearest whole dollar.) $2,237 $2,013 $2,684 $9,009 What is the value of Tolbotics Inc.'s option to delay the start of the project? (Note: Do not round intermediate calculations and round your answer to the nearest whole dollar-) $2,684$9,009$2,013$2,237 Blur Corp. is looking at investing in a production facility that will require an initial investment of $500,000. The facility will have a three-year useful life, and it will not have any salvage value at the end of the project's life. If demand is strong, the facility will be able to generate annual cash flows of $265,000, but if demand turns out to be weak, the facility will generate annual cash flows of only $125,000. Blur Corp. 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 12%, what will be the expected net present value (NPV) of this project? $31,643 $15,822 $33,225 $20,568 Blur Corp. could spend $510,000 to build the facility. Spending the additional $10,000 on the facility will allow the company to switch the products they produce in the facility after the first year of operations if demand turns out to be weak in year 1 . If the company switches product lines because of low demand, it will be able to generate cash flows of $260,000 in years 2 and 3 of the project. What is the expected NPV of this project if Blur Corp. decides to invest the additional $10,000 to give themselves a flexibility option? (Note: Do not round your intermediate calculations.) $91,856 $36,742 $60,213 $82,670 What will be the value of Blur Corp.'s flexibility option