Tyde Technology has come up with a new electric scooter prototype, and is ready to go ahead with pilot production and test marketing. The pilot production and test marketing phase will last for one year and cost $500,000. The management team believes that there is a 50% chance that the test marketing will be successful and that there will be sufficient demand for the new electric scooter. If the test-marketing phase is successful, then Tyde Technology will invest $3 million in year one to build a plant that will generate expected annual after-tax cash flows of $400,000 in perpetuity beginning in year two. If the test marketing is not successful, Tyde can still go ahead and build the new plant, but the expected annual after-tax cash flows would be only $200,000 in perpetuity beginning in year two. Tyde has the option to stop the project at any time. Tyde's cost of capital is 10%.

Describe two factors that affect the value of an investment timing option. Explain how theyaffect the value of an investment timing option by usingTyde Inc