Problem 1) You are considering a project which has been assigned a discount rate of 8%. If you start the project today, you will incur an initial cost of $480 and will receiv cash inflows of $350 a year for three years. If you wait one year to start the project, the initial cost will rise to $520 and the cash flows will incrase to $385 a year for three years. What is the value fo the option to wait?
Problem 2) Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend to $2.00 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share fo this stock if you want to earn 12% return on your equity investments?