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Exhibit III The cash flows of a two-year project when demand turns out to be high and when demand turns out to be low are
Exhibit III The cash flows of a two-year project when demand turns out to be "high" and when demand turns out to be "low" are presented below. The probability that demand will be "high" is 50% and the probability that demand will be "low" is 50%. Assume that 10% is the appropriate discount rate. Cash flow if demand is "high" Cash flow if demand is "low" Year 0 -S100 -$100 Year 1 $100 SSO Year 2 $100 S50 If demand turns out to be low," the firm has the option to stop the project at the end of Year 1 (after the Year 1 cash flow is realized) and sell the project's equipment for an after-tax salvage value of $55. What is the expected NPV considering this abandonment option? Round your final answer to the nearest dollar. Choose the best answer without decimals... a. $35 b. $10 O c. $30 O d. $20
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