10. Decision tree with multiple decision points Aa Aa Cold Duck Manufacturing Inc. Co. is planning to add a new product line to make iwidgets. However, Cold Duck Manufacturing Inc. is considering the passibility of abandoning the project if the demand for the new product is low In the following dedsiontee table, (1), (2) and (3) represent dedision points, also known as dedsion nodes or stages. The dollar value to the right of eadh dedision nade represents the net cash flow at that point, and the cash flows shown undert 3, 4, and 5 represent the cash inflows if the projectis pushed on to completion. If Cold Duck Manufacturing Inc. Co. decides to launch the new line for iwidgets at Stage (1), then it will spend $6D,0DD on the marketing study. If the marketing study yields positive results, then the firm will spend $20D,0DD on the prototype. If the prototype works well, then the firm will spend several millions more at Stage (3) to build a production plant. Suppose that as an analyst at Cold Duck Manufacturing Inc. you have to analyze sequential decisions. By studying the following dedsion tree, you learn which of the fallowing? Check all that apply Ifthe project is canceled after Stage (1), Cold Duck Manufacturing Inc.'scosts will be $10,269,000. There is a 55% probability ofthe pilot project yielding good results. There is a 10% probability that investment in a production plant will yield bad results. There is a 95% probability of the pilot project yielding good results. Complete the decision tree table by calculating the net present values (NPVs) and joint probabilities, as well as products of joint probabilities and NPVs for each decision branch. Assume that the weighted average cost of capital (WACC) is 9% for all deasion branches. Hint: Use either a spreadsheet program's unctions or a financial calculator for this task. Round the NPVs to the nearest dollar and remember to enter the minus sign if a value is negative. Note: All cash amounts in the following table are in thousands of dollars. Step o 1st Invest Prob 2nd Invest Prob Step 1 Step 2 Step 3 Inflow Step 4 Step 5 Inflow Inflow NPV (S) 3rd Invest Joint NPVx Joint Prob (%) Prob (s) (2) 55% (2) 35% (2) 10% $8,237 $20,055 2,35$7,800 -$10,269 (3)$4,761 -$10,000 (3) $1,900 Stop (3) 0 95% -$200 (1)-$60 5% Stop $0 Expected NPV Based on you r calculat ions, you recommend that Cold Duck Manufacturing Inc. 10. Decision tree with multiple decision points Aa Aa Cold Duck Manufacturing Inc. Co. is planning to add a new product line to make iwidgets. However, Cold Duck Manufacturing Inc. is considering the passibility of abandoning the project if the demand for the new product is low In the following dedsiontee table, (1), (2) and (3) represent dedision points, also known as dedsion nodes or stages. The dollar value to the right of eadh dedision nade represents the net cash flow at that point, and the cash flows shown undert 3, 4, and 5 represent the cash inflows if the projectis pushed on to completion. If Cold Duck Manufacturing Inc. Co. decides to launch the new line for iwidgets at Stage (1), then it will spend $6D,0DD on the marketing study. If the marketing study yields positive results, then the firm will spend $20D,0DD on the prototype. If the prototype works well, then the firm will spend several millions more at Stage (3) to build a production plant. Suppose that as an analyst at Cold Duck Manufacturing Inc. you have to analyze sequential decisions. By studying the following dedsion tree, you learn which of the fallowing? Check all that apply Ifthe project is canceled after Stage (1), Cold Duck Manufacturing Inc.'scosts will be $10,269,000. There is a 55% probability ofthe pilot project yielding good results. There is a 10% probability that investment in a production plant will yield bad results. There is a 95% probability of the pilot project yielding good results. Complete the decision tree table by calculating the net present values (NPVs) and joint probabilities, as well as products of joint probabilities and NPVs for each decision branch. Assume that the weighted average cost of capital (WACC) is 9% for all deasion branches. Hint: Use either a spreadsheet program's unctions or a financial calculator for this task. Round the NPVs to the nearest dollar and remember to enter the minus sign if a value is negative. Note: All cash amounts in the following table are in thousands of dollars. Step o 1st Invest Prob 2nd Invest Prob Step 1 Step 2 Step 3 Inflow Step 4 Step 5 Inflow Inflow NPV (S) 3rd Invest Joint NPVx Joint Prob (%) Prob (s) (2) 55% (2) 35% (2) 10% $8,237 $20,055 2,35$7,800 -$10,269 (3)$4,761 -$10,000 (3) $1,900 Stop (3) 0 95% -$200 (1)-$60 5% Stop $0 Expected NPV Based on you r calculat ions, you recommend that Cold Duck Manufacturing Inc