WorldTrans is considering whether to make the investment today or to wait a year to find out about the FDA's decision. If it waits a year, the project's up-front cost at t = 1 will remain at $2,700, the subsequent cash flows will remain at $750 per year if the competitor's product is rejected and $50 per year if the alternative product is approved. However, if WorldTrans decides to wait, the subsequent cash flows will be received only for six years (t = 2 ... 7). In addition, once WorldTrans knows the outcome of the FDA's decision, it will not take on the project if its NPV is negative.
This is a risky project, so a WACC of 16.6% is to be used. If WorldTrans chooses to wait a year before proceeding, what is the value (in thousand) of the timing option today? Do not round intermediate calculations.
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