The 123 company is thinking whether to drill for oil source on a land that they had bought 10 years ago. For this project, it required a 400 million dollars. If they decided to pursue this project, the expected cash that it would bring is 215 million dollar annually for the next 4 yrs. Since their is a limited market information available to support the forecast of financial, 123 company is considering to wait 2 years before implementing the project until more reliable geology information as well as oil prices be made available. If the company opt to wait for 2 years, the project will cost them 600 million dollars then cash flows will be expected to continue for 4 years after the initial investment. In addition, if the 123 company waits for 2 years, there is only 95% chance that expected cash flows will be at 220.0 million dollars annually for 4 years. Contrary, there is the 5% chance that the cash flows will be at PhP120.0 million annually for 4 years. The company used an 11% WACC for this project. A. What is the expected NPV should the firm proceed with the project today? b. is it be more advantageous to the 123 company to wait 2 years before pursuing the project? Explain well. c. Determine the value of the option. d. what are the disadvantages might happen from delaying the timing of the project?
The 123 company is thinking whether to drill for oil source on a land that they had bought 10 years ago. For this project, it required a 400 million dollars. If they decided to pursue this project, the expected cash that it would bring is 215 million dollar annually for the next 4 yrs. Since their is a limited market information available to support the
A. What is the expected
b. is it be more advantageous to the 123 company to wait 2 years before pursuing the project? Explain well.
c. Determine the value of the option.
d. what are the disadvantages might happen from delaying the timing of the project?
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