Financial Options: NPV Exercise David and Jennifer are looking to buy an existing business that's for sale. They found two stores that intrigue them. Let's call them Store A and Store B. Both stores are for sale at the same price, $1.5 million. The uncertainty David and Jennifer are facing is the health of the economy. They researched the economic forecasts and believe that there is a 65% chance the economy will remain strong and a 35% chance that the economy may slip into a recession. If the economy does go into a recession, their expected sales will decrease. They must pay $1.5 million now (Year 0) to purchase either store. Their cost of capital is 15.0%. Store A If the economy remains strong, Store A will generate net cash flows of $250,000 in Years 1 and 2: $350,000 in Years 3 and 4; and $400,000 in Year 5 They then expect to sell the store in Year 6 for $1.55 million. If the economy slips into a recession, then all of the cash flows, including the sale price of the store at the end of Year 6, will only be 75% of what they would have been had the economy remained strong 1. Calculate the net present value (NPV) of their investment if they purchase Store A and the economy remains strong. 2. Calculate the NPV of their investment if they purchase Store A and the economy slips into recession. 3. As stated, there is a 65% chance the economy remains strong and a 35% chance the economy slides into recession. Calculate the expected NPV of their investment if they purchase Store A