Fethe's Funny 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 $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 $6,000 per year for 2 years. Fethe's cost of capital is 14%. Do not round intermediate calculations.

1. 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. $1736
2. 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 8%.

   Select the correct decision tree. D( Correct decision tree).

3. 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.

4. Help solve for C.

A B C D 4 = 3 0 2 3 40 % Prch 20.000 24.000 24.000 24.000 24.000 Good 20.000 (r = 14 % r = 14 0 1 2 40% Prob/- 20.000 5.000 6.000 6.000 6.000 Good - 20.000 (r = 3% 40 % Pob, Good r = 14 % 0 2 3 20.000 24.000 24.000 24.000 24.000 20.000 (r = B% [= 14 % 0 2 3 40% Prob/- 20.000 24.000 24,000 24.000 24.000 Good 20.000 (r = 8% Bad 60 % ProE Bad 60% Prob - 20.000 24.000 24.000 Bad 60% Prob Bad 50 % Prob 20.000 6.000 20.000 6.000 6.000 20.000 6.000 6.000 0 0