[5 points] Frozen music production corporation plans to open the concert for renowned

singers Elsa and Anna. The company has two options to host the concert for fans:either to open the duet concert or to open a single concert for Elsa first and another

single concert for Anna a year later. The decision tree on the next page shows

the cash flows of each concert options. The chance of having a successful concert

and moderate

success is 60% and 40%, respectively.

Although the option for having Elsas concert initially bring additional

cost for the

concert for Anna, the manager can manage the amount of cost for Annas concert

depending on the concert performance by Elsa. The cost of capital (or dis

count rate)

for this project is 10%.

Calculate the expected net present value for each option. Which decision does the manager choose?

Initial fund (Year 0) Year 0 Additional fund (Year 1) Year 1 Anna 15,000 Successful concert - 8,000 13,000 No concert 0 Elsa - 6,000 Anna 2,000 Moderate support - 4,000 7,000 No concert 0 Successful concert 28,000 Elsa & Anna - 10,000 Moderate support 9,000