Investment timing option digital inc. is considering the production

 INVESTMENT TIMING OPTION Digital Inc. is considering the production of a new cell phone. The project will require an investment of $20 million. If the phone is well-received, the project will produce cash flows of $10 million a year for 3 years; but if the market does not like the product, the cash flows will be only $5 million per year. There is a 50% probability of both good and bad market conditions. Digital can delay the project a year while it conducts a test to determine whether demand will be strong or weak. The delay will not affect the dollar amounts involved for the project’s investment or its cash flows—only their timing. Digital’s WACC is 10%. What action do you recommend?


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