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Problem:

You are considering a project which has been assigned a discount rate of 8%. If you start the project today, you will incur an initial cost of $480 and will receive cash inflows of $350 a year for three years. If you wait one year to start the project, the initial cost will rise to $520 and the cash flows will increase to $385 a year for three years.

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Question: What is the value of the option to wait?

Note: Explain all steps comprehensively.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91172206

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