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Question 24.4: The Investment Timing Decision A project costs $200 and has ...

The Investment Timing Decision

A project costs $200 and has a future cash flow of $42 per year forever. If we wait one year, the project will cost $240 because of inflation, but the cash flows will be $48 per year forever. If these are the only two options, and the relevant discount rate is 12 percent, what should we do? What is the value of the option to wait?

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