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Companies often come across projects that have positive NPV opportunities in which the company does not invest, Cornpanies must evaluate the value of the option

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Companies often come across projects that have positive NPV opportunities in which the company does not invest, Cornpanies must evaluate the value of the option to invest in a new project that would potentially contribute to the growth of the firm. These options are referred to as growth options. Consider the case of Hack Wellington Co: Hack Wellington Co. is considering a three-year project that will require an initial investment of $35,000. It has estimated that the annual cash flows for the project under good conditions will be $40,000 and $10,000 under bad conditions. The firm believes that there is a 60% chance of good conditions and a 40% chance of bad conditions. If the firm is using a weighted average cost of capital of 13%, the expected net present value (NPV) of the project is (Note: Round your answer to the nearest whole dollar.) Hack Wellington Co. wants to take a potential growth option into account when calculating the project's expected NPV, if conditions are good, the firm will be able to invest $2,000 in year 2 to generate an additional cash flow of $15,000 in year 3 . If conditions are bad, the firm will not make any further investments in the project. Using the information from the preceding problem, the expected NPV of this project-when taking the growth option into account-is (Note: Round your answer to the nearest whole dollar.) If the firm is using a weighted average cost of capital of 13%, the expected net present value (NPV) of the project is (Note: Round your answer to the nearest whole dollar.) Hack Wellington Co. Wants to take a potential growth option into account when calculating the project's expected NPV. If conditions are good, the firm will be able to invest $2,000 in year 2 to generate an additional cash flow of $15,000 in year 3 , If conditions are bad, the firm will not make amy further invertments in the project. Using the information from the preceding problem, the expected NPV of this project-when taking the growth option into account-is (Note: Round your answer to the nearest whole dollar.) Hack Wellington Co.s growth option is worth (Note: Round your answer to the nearest whole dollar.)

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