Question
Your firm is considering an oil drilling project. The project will cost $21 million after-tax today and is expected to generate after-tax cash flows of
Your firm is considering an oil drilling project. The project will cost $21 million after-tax today and is expected to generate after-tax cash flows of $9 million per year at the end of the next 4 years. If the company waits for 2 years, the project will cost $25 million after-tax and there is a 95% chance that the project will generate $12 million per year for four years and a 5% chance that the project will generate $8 million per year for 4 years. Assume all cash flows are discounted at 12%. The projects expected NPV if your firm chooses to drill today = $ ?????? million. The value of this investment timing option = $ ??????? million. Round your final answers to 2-decemial places. Should your company wait 2 years before deciding whether to drill - "yes" or "no" .????????
Prob (%) | t = 0 | t = 1 | t = 2 | t = 3 | t = 4 | t = 5 | t = 6 |
| -21 | 9 | 9 | 9 | 9 |
|
|
95 |
|
| -25 | 12 | 12 | 12 | 12 |
5 |
|
| -25 | 8 | 8 | 8 | 8 |
Need to answer the ?????
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