A.Paper Planes Aviation Inc. manufactures small, private aircraft. Management is evaluating a proposal to introduce a new high performance plane. High performance aviation is an expensive sport undertaken largely by people who are both young and wealthy. Paper Planes sees its target market as affluent professionals under 35 who have made a lot of money in the stock market in recent years.

Stock prices have been rising rapidly for some time, so investment profits have been very handsome, but lately there are serious concerns about a market downturn. If the market remains strong, Paper Planes estimates it will sell 50 of the new planes a year for five years, each of which will result in a net cash flow contribution of $200,000. If the market turns down, however, only about 20 units a year will be sold. Economists think there's about a 40% chance the market will turn down in the near future.

There are also some concerns about the design of the new plane. Not everyone is convinced it will perform as well as the engineering department thinks. Indeed, the engineers have sometimes been too optimistic about their projects in the past. If performance is below the engineering estimate, word-of-mouth communication among fliers will erode the product's reputation, and unit sales after the first year, will be 50% of the forecasts above. Management thinks there's a 30% chance the plane won't perform as well as the engineers think it will. The cost to bring the plane through design and into production is estimated at $15M. Paper Planes's cost of capital is 14%.

1. If Paper Planes elects to do the project, what is an abandonment option at the end of year 1 worth if Paper Planes can recover $8 million of the initial investment into other uses at that time? Enter your answer in millions and don't include the "$" or commas. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round the answer to two decimal places. If an answer is zero, enter "0". Do not round intermediate calculations. Round PVF and PVFA values in intermediate calculations to four decimal places. $?million
2. If the recovery is $13 million? Enter your answer in millions and don't include the "$" or commas. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round the answer to two decimal places. Do not round intermediate calculations. Round PVF and PVFA values in intermediate calculations to four decimal places.$? million

B. Wahanda Concrete Inc. has been building basements and slab foundations for new homes in Newark, NJ for more than 20 years. However, new home sales have slowed recently, and residential construction work is hard to get. As a result, management is considering a venture into commercial construction. Although Wahanda would still be pouring concrete in commercial building, almost everything else about the business differs substantially from homebuilding, which is all the firm has done until now.

The local commercial concrete business is dominated by two firms. Readi-Mix Inc. and Toddy Concrete Inc. Readi-Mix has been in business for 50 years, has a market share of 70%, and a beta of 1.3. Toddy has been in the area for only five years and has a beta of 2.4. Crest's own beta is 0.9, and its cost of capital is 9.4%. Both of these were developed during a long period in which the housing market was prosperous and growing steadily. The stock market is currently returning 13% and Treasury bills are yielding 3.9%.

Wahanda will have to spend $850,000 to get started in the commercial field and expects net cash inflows of $250,000 in the first year, $400,000 in the second year, and $600,000 in the third.

1. What is the NPV of the new project? (Round to the nearest dollar, don't include the "$" and use minus for negative values.) $
2. Should Wahanda give commercial construction a try? (Enter "Yes" or "No")