Your firm has an opportunity to invest in a project that costs $800 and you...
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Your firm has an opportunity to invest in a project that costs $800 and you expect it to return two payments of $500 per year. The interest rate of the project is 10%. The current NPV of the project is $67.77.
You also have the option to wait one year to invest $800. If you wait, you will know more and can revise your expectations such that you either expect to return two payments of $750 with a probability of 0.6 or, alternatively, two payments of $300 (the probability of this is equal to 1 minus the probability of the first result). The interest rate of the project is still 10%.
What is the current present value of the NPV, if they choose to wait?
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