INVESTMENT TIMING OPTION 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 $8 million today. Bush estimates that once drilled, the oil will generate positive cash flows of $4 million a year at the end of each of the next 4 years. Although the company is fairly confident about its cash flow forecast, it recognizes that if it waits 2 years, it will have more information about the local geology as well as the price of oil. Bush estimates that if it waits 2 years, the project will cost $9 million, and cash flows will continue for 4 years after the initial investment is made. Moreover, if it waits 2 years, there is a 90% chance that the cash flow's will be $2.2 million a year for 4 years, and there is a 10% chance that the cash flows will be $2.2 million a year for 4 years. Assume that all cash flows are discounted at 10%.
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Fundamentals of Financial Management (MindTap Course List)
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Accounting Information Systems
Contemporary Marketing
Essentials of Business Communication (MindTap Course List)
Management, Loose-Leaf Version
Financial And Managerial Accounting
Financial & Managerial Accounting
Principles of Economics (MindTap Course List)
Corporate Financial Accounting
Accounting Information Systems
Financial & Managerial Accounting
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
College Accounting (Book Only): A Career Approach
Essentials of Economics (MindTap Course List)
College Accounting, Chapters 1-27
STATISTICS F/BUSINESS+ECONOMICS-TEXT
College Accounting (Book Only): A Career Approach
Principles of Macroeconomics (MindTap Course List)
Managerial Accounting: The Cornerstone of Business Decision-Making
Exploring Economics
Accounting (Text Only)
Intermediate Accounting: Reporting And Analysis
MKTG 12:STUDENT ED.-TEXT
Principles of Microeconomics (MindTap Course List)
Financial Accounting
Brief Principles of Macroeconomics (MindTap Course List)
Statistics for Business & Economics, Revised (MindTap Course List)
Financial Accounting
Foundations of Business (MindTap Course List)
Pkg Acc Infor Systems MS VISIO CD
Principles of Macroeconomics (MindTap Course List)
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Cornerstones of Cost Management (Cornerstones Series)
Macroeconomics
Microeconomics
Purchasing and Supply Chain Management
Economics (MindTap Course List)
PAYROLL ACCT.,2019 ED.(LL)-TEXT
Economics For Today
Corporate Financial Accounting
Survey of Accounting (Accounting I)
Practical Management Science
Cornerstones of Financial Accounting
Managerial Accounting
Micro Economics For Today
Economics: Private and Public Choice (MindTap Course List)
Understanding Management (MindTap Course List)
Microeconomics: Private and Public Choice (MindTap Course List)
MACROECONOMICS FOR TODAY
Principles of Microeconomics
Macroeconomics: Private and Public Choice (MindTap Course List)