A new product line has a pilot followed by launch. The firms cost of capital is 8%. The pilot requires an investment of $10M. One year later, the pilot produces $18M (good outcome) or $5M (poor outcome) with equal probability. After the pilot, the firm can invest another $10M at time 1 to fully launch the product. If the pilot is successful, the full launch will pay out $20M (good outcome) or $6M (weak outcome). If the pilot is not successful but they launch anyway, the good outcome will payout $8M while the weak outcome will payout $1M. Assume the 50/50 probabilities of good and weak outcomes. Assume no taxes.

1. What is the present value of the pilot only?
2. What is the product line worth if you had to commit today to both pilot and launch?
3. What is the product line worth if you can wait until after the pilot to decide whether to launch?