1. You are considering a project that has been assigned a discount rate of 12 percent. If you start the project today, you will incur an initial cost of $75,000 and will receive cash inflows of $40,000 a year for three years. If you wait one year to start the project, the initial cost will rise to $80,000 and the cash flows will increase to $48,000 a year for three years. What is the value of the option to wait?
$11,560.30
$10,433.80
$9,786.42
$8,852.71
$8,216.70
2. Jonhson & Sons has the following information related to a new project: Initial investment: $1,200,000; Fixed costs: $630,000; Variable costs: $15.20 per unit; Selling price: $31.40 per unit; Discount rate: 16 percent; Project life: 6 years; Tax rate: 34 percent. Fixed assets are depreciated using straight-line depreciation over the project's life. What is the financial break-even point?
62,988
64,311
59,870
67,343
57,206