eBook Problem Walk-Through Growth Options Decision-Tree Analysis Fethe's Funny Hats is considering seling trademarked, orange-haired curly wigs for University of Tennessee football games. The purchase cost for a 2-year o franchise to sell the wigs is $20,000. If demand is good (40% probability), then the net cash flows will be $24,000 per year for 2 years. If demand is bad (60% probability), then the net cash flows will be $7,000 per year for 2 years. Fethe's cost of capital is 10%. Do not round intermediate calculations What is the expected NPV of the project? Negative value, if any, should be indicated by a minus uign, Round your answer to the nearest dollar 7. $ b. If Fethe makes the investment today, then it will have the option to renew the franchise fee for 2 more years at the end of Year 2 for an additional payment of $20,000. In this case, the cash flows that occurred in Years 1 and 2 will be repeated (so If demand was good in Years 1 and 2, it will continue to be good In Years 3 and 4). Write out the decision tree. Note: The franchise fee payment at the end of Year 2 is known, so it should be discounted at the risk free rate, which is 6%. Select the correct decision tree. 8 40 Pob Good 1 2 20.000 24000 24000 24000 24,000 - 20.000 (1 = 6) 40% Prob Good 10, 2 20.000 24000 24000 24000 24000 - 20.000 (= 0) Bad 80% Prob Bad 80% Prob - 20.000 7.000 7.000 20.000 7000 7000 7000 7000 0 0 D C Ch 14: End of Chapter Problems of $20,000. In this case, the cash flows that occurred in Years 1 and 2 will be repeated (soif demand was good in Years 1 and 2, it will continue to be good in Years 3 and 4). Write out the decision tree. Note: The franchise fee payment at the end of Year 2 is known, so it should be discounted at the risk-free rate, which is 6% Select the correct decision tree. B 104 += 105 40% Pb Good 20 000 24000 24000 24000 24000 - 20000 (10) 40% Prob Good 20,000 24000 24000 24000 24.000 - 20.000(04) 00 Probe Bad 609 Pro 20.000 7000 7.000 7000 7000 - 20.000 7.000 7.000 0 D 405 Peb Good 2 20 000 24000 24000 24000 24 000 - 20000 (10) 40% Pob Good 104 2 3 20 000 7000 7000 7000 7000 - 20.000(0) Bad Bu 60% Prob 00 Pro 20 000 7000 7000 0 0 20 000 24000 24000 0 O The correct graph is select Use decision-tree analysis to calculate the expected NPV of this project, including the option to continue for an additional 2 years. Negative values, if any, should be indicated by a minus sign. Round your answer to the nearest dollar, Check My Work (s remaining) lowe kry