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Solution

We know if we delay, the project costs $108.5 million next year.

Compare this amount to the cost of $100 million now using the interest rate of 4%:

$108.5 million ÷ ($1.04 next year/$1 now) = $104.33 million now

The cost of a one year delay would be:

$104.33 million – $100 million = $4.33 million now (present value).  Why is the value different?

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