corp Properties is building a factory (t = 0) that would cost $15 million. The after-tax cash flows the factory generates will depend on whether the state imposes a new property tax (50/50 chance the tax passes). If the tax passes, the factory will produce after-tax cash flows of $2 million at the end of each of the next 5 years. And if not, the factory will produce after-tax cash flows of $6 million for the next 5 years. The project has a WACC of 12%. The firm may have the option to abandon the project 1 year from now if the tax passes. If the factory project is abandoned, the firm will collect the year 1 cash flow, AND sell the property at the end of year 1 for $12 million (assume this includes any tax impact). Once the project is abandoned, the company would no longer receive any cash inflows from it. Show equations used.

1. What is the expected NPV if the company does not have the option to abandon the project?

2. What is the expected NPV if the company does have the option to abandon the project?