Douglass Engineering Is Considering a Project That Has an Initial

Multiple Choice

Douglass Engineering is considering a project that has an initial cost today of $22,000. The project has a two-year life with cash inflows of $13,500 a year. Should the firm decide to wait one year to commence this project, the initial cost will increase by 4 percent and the cash inflows will increase to $14,200 a year. What is the value of the option to wait if the applicable discount rate is 12 percent?

A) $0
B) $81.05
C) $123.33
D) $141.41
E) $183.17