Consider a manufacturer that is considering introducing a new product line. The project has a two year life. An initial investment of $400 (cash flows are in millions) is required to fund a year-long development phase. At the end of a year, a further $580 is required for production and cash inflows from sales (net of selling expenses) will occur at the end of the second year. There is some uncertainty about the amount of the cash inflows since it is unclear whether the market will embrace the new product. The manufacturer currently believes that there is a 65% chance that the new product will be a winner. They also believe that the product demand will become more apparent over the next year. In particular, there is a 75% chance that the direction over the next year will continue over the subsequent year. The associated cash flows and uncertainty are presented in the figure below. t = 0 t = 1 t = 2 0.75 1,760 -580 0.65 0.25 960 -400 0.35 0.25 800 -580 0.75 -560 Applying a discount rate of 14% evaluate the above project using traditional NPV analysis and NPV analysis augmented with a real options methodology (i.e., the manufacturer can abandon the project after year 1). Comment briefly on your analysis.