Broadway Inc. is considering a new musical. The initial investment required is $1,820,000. Every year, the cash flow from assets from the project is expected to be $260,000, continuing forever.

Investments with similar risk deliver a rate of return of 7%.

In fact, the annual cash flow of $260,000 is an expected value: there is a 50% chance that annual cash flow will be $585,000 and a 50% chance that it will be -$65,000. What is the expected NPV of the project if the company cannot abandon the project?

1:What is the true NPV of the project if the company can abandon the project after the first year?