(All figures in millions and assume all cash flows are after-tax)

SpaceX is pondering the construction of a moon-tourism spaceship, requiring an outflow of $1500 at t=0. If fully constructed, the spaceship will have a 10-year life, with cash inflows at t=4 through t=10. You do not know whether the ship will be a success or a failure, until new information emerges at t=3. You forecast that, if the ship looks to be a success, the annual cash flows from t=4 through t=10 will be $3000 per year, receiving the first cash flow exactly four years from today. If the endeavor looks to be a failure, the annual cash flows will each be only $250, with the first cash flow exactly four years from today. The company has the option, at t=3, to sell the spaceship to Roskosmos for $1500. Current forecasted probabilities are 25% for success and 75% for failure.

Using a discount rate of 25%/year, calculate

(a) the expected NPV of this project without the abandonment option (i.e., the option to sell to Roskosmos);

(b) the value of this project with the option to abandon and sell the ship to Roskosmos, and

(c) the value of the option to abandon by selling to Roskosmos. (20 points)