10:30 + TE + X Chapter 13 Practice Problems: At... Question 1 (-/10 Carlson Inc. is evaluating a project in India that would require a $6.2 million investment today (t = 0). The after- tax cash flows would depend on whether India imposes a new property tax. There is a 50-50 chance that the tax will pass, in which case the project will produce after-tax cash flows of $1,350,000 at the end of each of the next 5 years. If the tax doesn't pass, the after-tax cash flows will be $2,000,000 for 5 years. The project has a WACC of 12.0%. The firm would have the option to abandon the project 1 year from now, and if it is abandoned, the firm would receive the expected $1.35 million cash flow at t= 1 and would also sell the property for $4.75 million att 1. If the project is abandoned, the company would receive no further cash inflows from it. What is the value (in thousands) of this abandonment option? $141 $104 $115 $128 $155 O of 6 completed Save for Later Submit 10:30 . LTE E X Chapter 13 Practice Problems: At... Question 2 (--/10) Langston Labs has an overall (composite) WACC of 10%, which reflects the cost of capital for its average asset. Its assets vary widely in risk, and Langston evaluates low- risk projects with a WACC of 8%, average-risk projects at 10%, and high-risk projects at 12%. The company is considering the following projects: Project Risk Expected Return High 15% Average 12% High 11% O of 6 completed Save for Later Submit 10:31 LTE B1 X Chapter 13 Practice Problems: At... Question 6 (-/10 Winters Corp. is considering a new product that would require an investment of $20 million now, at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $10 million at the end of each of the next 3 years (t = 1,2,3), but if the market did not like the product, then the cash flows would be only $4 million per year. There is a 50% probability that the market will be good. The firm could delay the project for a year while it conducts a test to determine if demand is likely to be strong or weak, but it would have to incur costs to obtain this timing option. The project's cost and expected annual cash flows would be the same whether the project is delayed or not. The project's WACC is 11.0%. What is the value (in thousands) of the option to delay the project? $1,311 $1,619 $1,799 $1,999 O of 6 completed