Attempts Keep the Highest / 3 9. Decision tree with multiple decision points Purple Whale Inc Co, is planning to add a new product line to make iPlanes. However, Purple Whale Inc is considering the possibility of abandoning the project if the demand for the new product is low. In the following decision tree table. (1), (2) and (3) represent decision points, also known as decision nodes or stages. The dollar value to the right of each decision node represents the net cash flow at that point, and the cash flows shown under t - 3, 4, and 5 represent the cash praw if the project is pushed on to completion II Purple Whale Inc. Co decides to launch the new line for iPlanes at Stage (1), then it will spend $60,000 on the marketing study. If the marketing study yields positive results, then the firm will spend $200,000 on the prototype. If the prototype works well, then the firm will spend several millions more at Stage (3) to build a production plant. Suppose that as an analyst at Purple Whale Inic you have to analyze sequential decisions. By studying the following decision tree, you learn which of the following? Check all that apply There is a probability that the marketing study will produce positive results There is a probability that the marketing study will produce negative results, There is a 55% probability that the marketing study will produce positive results If the project is canceled after Stage (1), the cost to Purple Whale Inc. Co will be the $60,000 Complete the decision tree table by calculating the net present Values (NPV) and joint probabilities, as well as products of joint probabilities and NPV for each decision branch. Assume that the weighted average cost of capital (WACC) is 9% for all decision branches. HintUse either a spreadsheet program's functions or a financial calculator for this task. Round the NPVs to the nearest dollar and remember to enter the minus sign if a value is Ch 13: Assignment - Capital Budgeting: Estimating Cash www There is a 55% probability that the marketing study will produce positive results. If the project is canceled after Stage (1), the cost to Purple Whale Inc. Co will be the $60,000 Complete the decision tree table by calculating the net present values (NPV) and joint probabilities, as well as products of Joint probabilities and NPVS for each decision branch. Assume that the weighted average cost of capital (WACC) is 9% for all decision branches. Hint: Use either a spreadsheet program's functions or a financial calculator for this task. Round the NPVs to the nearest dollar and remember to enter the minus sign if a value is negative Note: All cash amounts in the following table are in thousands of dollars. Step 0 Step 1 Step 2 Step 3 ry 1st Invest Prob 2nd Invest Joint Prob (96) NPV X JC (5) Prob 3rd Invest (2) 55% -$10.269 (2) 35% - $10,000 (2) 10% Stop Step 4 Step 5 NPV (5) $8,237 $20,065 13,666 $2,345 $7,800 -393 $0 $0 -260 50 $0 -60 95% Inflow (3) $4,761 (3) $1,900 (3) 50 7.140 - 5200 52.25 33.25 (1) - $60 9.50 5% Stop $0 $0 5.00 Expected NPV = Based on your calculabons, you recommend that Purple Whale Inc Grade It Now Save & Continue Continue without saving OL ost to Purple Whale Inc. Co will be the $60,000. esent values (NPV) and joint probabilities, as well as products of joint probabilities and age cost of capital (WACC) is 9% for all decision branches. Hint: Use either a spreadshem Round the NPVs to the nearest dollar and remember to enter the minus sign if a value is usands of dollars Step 4 Step 3 Joint Prob (%) NPV X Joint Prob (5) Inflow Step 5 NPV ($) $20,065 13,666 52.800 rejects the new project 52.25 7,140 (3) 34,261 $8,237 (3) $1,90012 (3) 50 50 delays the new project discontinues all old products and switches to Planes accepts the new project le Whaleine Grade It Now Save & Continue Continue without saving OL 0 do Prtson Home End PgUp 10 on ( 9 7 8 U o J K L