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Chrustuba Inc. is evaluating a new project with an after-tax cost of $8.0 million at t = 0. There is a 50% chance that the
Chrustuba Inc. is evaluating a new project with an after-tax cost of $8.0 million at t = 0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $5.2 million during Years 1, 2, and 3. However, there is a 50% chance that it would be less successful and would generate annual after-tax cash flows of only $1 million for each of the 3 years. If the project is highly successful, it would open the door for another after-tax investment of $10 million at the end of Year 2, and this new investment could be sold for $20 million after taxes at the end of Year 3. Assuming a WACC of 12.0%, what is the project's expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations. O a. $3,435 O b. $4,004 O c. $3,847 O d. $5,155 O e. $2,578
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