Problem:
HV Inc. is trying to determine the optimal time to undertake a product expansion. The project will require an initial investment of $15M and the firm has a WACC of 3%. Theexpansion is estimated to last 8 years, and if it is undertaken today, the annual cash flows associated with it will be $2.25M. Due to anticipated product adoption throughout the industry, it is estimated that the annual cash inflows will increase by 2% annually. What is the optimal time to undertake the product expansion and what is its value to the firm?
Summary of question:
The question is from Finance and it is about company which wants to find out the optimal time to undertake product expansion. Assuming a positive position, the optimal time as well as the value accrued to the company need to be calculated.