b. Now suppose the BSI can abandon the project at the end of the first year by selling it for $6 million. BSI will still receive the Year 1 cash flows, but will receive no cash flows in subsequent years. Assume the salvage value is risky and should be discounted at the WACC.
	WACC=	12%		Salvage Value =	$6
	Risk-free rate =	6%
Decision Tree Analysis
Cost		Future Cash Flows				NPV this	Probability
0	Probability	1	2	3		Scenario	x NPV
						11.62	3		15
		$9	$9	$9
	30%					-$0.39	-$0.16
-$10	40%	$4	$4	$4					7
	30%					-$5.54	-$1.66
		$5
						Expected NPV of Future CFs =
							1.67
When abandonment is factored in, the very large negative NPV under bad conditions is reduced, and the expected NPV becomes positive. Note that even though the NPV of medium is still negative, it is higher than it would be if the project was abandoned at year 1 if conditions are medium.