What is the value of the investment timing option? 2. What disadvantages might arise from delaying a project such as this drilling project? Explain.
The Bush Oil Company is deciding whether to drill for oil on a tract of land that the company owns. The company estimates that the project will cost $450 million today. Bush estimates that once drilled, the oil will generate positive cash flows of $215 million a year at the end of each of the next 4 years. Although the company is fairly confident about its cash flow
1. What is the value of the investment timing option?
2. What disadvantages might arise from delaying a project such as this drilling project? Explain.
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