Aggie Electronics, Inc., AE$,$ has developed flexible displays and is considering

investing in a factory to mass produce flexible displays to target the growing foldable

smartphone market. AE is financed from internally generated cash flows; the project is allequity$-$financed. Initial investment of $$600$K$.$ The project will be up and running by the end of $2022,$ with the first year of revenues in $2023.$ Discount rate is $10\%$ and expected cash flows from the project are as follows:

Year $202220232024202520262027$

Cash flows $($$$600,000)$ $$95,000$ $$89,500$ $$82,900$ $$76,300$ $$700,770$

$($a$)$ Compute the NPV of the project.

$($b$)$ Assume AE faces the following two scenarios.

$-$ Scenario $1$: The technology will work as planned and no effect on project expected cash

flows.

$-$ Scenario $2$: Additional cost, $$100$k per year $($after taxes$),$ is required due to technical

difficulties.

AE$$s management estimates a $10\%$ chance for scenario $2.$ Compute the expected value of the project.

$($c$)$ AE can also decide to shut down this project after one year. If so$,$ it anticipates that it can recoup $$400,000$ of its $$600,000$ initial investment, plus the first year expected free cash flow of $$95,000.$ Compute the expected value of this project. Should the firm accept or reject it$?$

$($d$)$ What is the value of abandonment option? How to interpret this value for decision making purposes?