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.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
None
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.
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.
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education