GAGET MINDIAP Q Search this course OC 14 Problems > Growth Option: Decision-Tree Analysis Fethe's Funny Hats is considering seiling 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 $26,000 per year for 2 years. If demand is bad (60% probability), then the net cash flows will be $5,000 per year for 2 years. Fethe's cost of capital 14%. Do not round intermediate calculations 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 $ 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 il 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 4%. Select the correct decision tree. A B F4 144 40% Pob Good 20.000 26000 26000 26.000 26000 - 20.000 ( 11) 40% Pol Good 20 000 5.000 2 5000 5000 5000 20 000 = 49) Bad 60% Prab Bad 50% Prob 20.000 5000 5000 0 0 20.000 26000 28.000 0 0 D 145