Excel Online Structured Activity: Investment Timing Option All American Telephones Inc. is considering the production of a new cell phone. The project will require an investment of $16 million. If the phone is well received, the project will produce cash flows of $10 million a year for 3 years, but if the market does not like the product, the cash flows will be only $3 million per year. There is a 50% probability of both good and bad market conditions. All American can delay the project a year while it conducts a test to determine whether demand will be strong or weak. The delay will not affect the dollar amounts involved for the project's investment or its cash flows-only their timing. Because of the anticipated shifts in technology, the 1-year delay means that cash flows will continue only 2 years after the initial investment is made. All American's WACC is 12%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. X Open spreadsheet What action do you recommend? Do not round intermediate calculations. Round your answers to the nearest dollar. Use a minus sign to enter negative values, if any. NPV without waiting: $ NPV of waiting 1 year: $ You recommend to wait for one year.
Excel Online Structured Activity: Investment Timing Option All American Telephones Inc. is considering the production of a new cell phone. The project will require an investment of $16 million. If the phone is well received, the project will produce cash flows of $10 million a year for 3 years, but if the market does not like the product, the cash flows will be only $3 million per year. There is a 50% probability of both good and bad market conditions. All American can delay the project a year while it conducts a test to determine whether demand will be strong or weak. The delay will not affect the dollar amounts involved for the project's investment or its cash flows-only their timing. Because of the anticipated shifts in technology, the 1-year delay means that cash flows will continue only 2 years after the initial investment is made. All American's WACC is 12%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. X Open spreadsheet What action do you recommend? Do not round intermediate calculations. Round your answers to the nearest dollar. Use a minus sign to enter negative values, if any. NPV without waiting: $ NPV of waiting 1 year: $ You recommend to wait for one year.
Intermediate Financial Management (MindTap Course List)
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Author:Eugene F. Brigham, Phillip R. Daves
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Chapter12: Capital Budgeting: Decision Criteria
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Transcribed Image Text:Excel Online Structured Activity: Investment Timing Option
All American Telephones Inc. is considering the production of a new cell phone. The project will require an investment of $16 million. If the phone is well
received, the project will produce cash flows of $10 million a year for 3 years, but if the market does not like the product, the cash flows will be only $3
million per year. There is a 50% probability of both good and bad market conditions. All American can delay the project a year while it conducts a test to
determine whether demand will be strong or weak. The delay will not affect the dollar amounts involved for the project's investment or its cash flows-only
their timing. Because of the anticipated shifts in technology, the 1-year delay means that cash flows will continue only 2 years after the initial investment is
made. All American's WACC is 12%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required
analysis to answer the question below.
X
Open spreadsheet
What action do you recommend? Do not round intermediate calculations. Round your answers to the nearest dollar. Use a minus sign to enter negative
values, if any.
NPV without waiting: $
NPV of waiting 1 year: $
You recommend to wait for one year.
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