Fethe's Funhy Hats is considering selling trademarked, orange-haired curly wigs for University of Tennessee football games. The purchase cost for a 2-year franchise to sell the wigs is 520,000 . If demand is good (40\% probability), then the net cash flaws will be $28,000 per year for 2 years. If demand is bad ( 60% probability), then the net cash flows wil be $3,000 per year for 2 years. Fethe's cost of capital is 12%. Do not round intermediate calculations. a. What is the expected NpV of the project? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest dollar. 5 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 franchlse fee poyment 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. The correct graph is Use Gecision-tree analyirs to calculate the expected Nov of this project, inchuding the option to continue for an addilional 2 rears. Negative valieri, if any. thould be indicated by a minus san. Round your answer to the nearest dollar Fethe's Funhy Hats is considering selling trademarked, orange-haired curly wigs for University of Tennessee football games. The purchase cost for a 2-year franchise to sell the wigs is 520,000 . If demand is good (40\% probability), then the net cash flaws will be $28,000 per year for 2 years. If demand is bad ( 60% probability), then the net cash flows wil be $3,000 per year for 2 years. Fethe's cost of capital is 12%. Do not round intermediate calculations. a. What is the expected NpV of the project? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest dollar. 5 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 franchlse fee poyment 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. The correct graph is Use Gecision-tree analyirs to calculate the expected Nov of this project, inchuding the option to continue for an addilional 2 rears. Negative valieri, if any. thould be indicated by a minus san. Round your answer to the nearest dollar
