Bruno has a capital investment project that could start immediately. The project will require a machine costing $2.4 million. The total discounted value now of the
a) What is the present value of the option to delay?
b) The supplier of the machine has offered to deliver it (if required) in one year's time at a price of only $2 million if Bruno pays a non-refundable deposit now. What is the maximum the firm should pay as a deposit now? What type of real option does this represent for Bruno? Identify the specific components of the option contract.
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