Company is considering an investment of an equipment which will produce new product which is expected to sell 100 units annually, with each unit generating incremental cash flow of 100 million won indefinitely.

•The production cost of this new product is 55 billion won, and the discount rate is 20%.

Q1: What is the NPV of the project?

•After one year, the company can re-evaluate the possibility of success given the market condition of the first year. At that time, if the possibility of success for this new project increases, the annual sales volume is expected to be adjusted upwards to 150 units. If the likelihood of failure increases, it's anticipated to be adjusted downwards to 50 units. The probability of success and failure is expected to be the same as of now.

•After one year, the company can sell the equipment for 40 billion won at that time.

Q2: What is the NPV of the project with the option?

Q3: What is the value of the this option?