If you build the factory now, evaluate the project with discounted cash flow analysis, and provide the net present value (NPV) of this investment.
(a) (b) Now suppose that you have the option of waiting one year in order to find out whether the cash flow goes up or down. Two different scenarios can occur. The first possibility with a chance of 50% is that one year from now you are informed that the cash flow goes up $6,000 (and remains there forever). The second possibility with a chance of 50% is that one year from now you are informed that the cash flow goes down to $2,000 (and remains there forever). Calculate the expected NPV of the two scenarios combined.
(c) Should the manager commit or wait? Quantitatively, what is the difference?
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