a. C. Problem Solving Xerox Knot Limited is examining a project that will have an initial cost today of $4 million Company's WACC is 12% while the risk-free rate is 6%. There is significant uncertainty surrounding the first-year cash flows which creates three possible cash-flow scenarios in Year 1. 40% probability that the cash flow after 1 year will be $6.25 million. b. 50% probability that the cash flow after 1 year will be $4.5 million 10% probability that the cash flow after 1 year will be $2.5 million Conditioned on first year performance outcome of scenario a, the second-year cash flow are likely to be 10 million (30% probability) or 6 million (50% probability), or 5.5 million (20% probability). If first year performance outcome of scenario b, the second-year cash flow are likely to be 6.5 million (30% probability) or 3.2 million (50% probability), or -1.5 million (20% probability). Finally, conditioned on first year performance outcome of scenario c, the second-year cash flow are likely to be 3.0 million (25% probability), or -1.25 million (40% probability) or -3.5 million (35% probability). Should the project be undertaken under NPV? How do you characterize the risk of this investment