General Forge and Foundry Co. is considering a three-year project that will require an initial investment of $41,000. If market demand is strong, General Forge and Foundry Co. thinks that the project will generate cash flows of $29,500 per year. However, if market demand is weak, the company believes that the project will generate cash flows of only $1,250 per year. The company thinks that there is a 50% chance that demand will be strong and a 50% chance that demand will be weak. If the company uses a project cost of capital of 10%, what will be the expected net present value (NPV) of this project? (Note: Do not round intermediate calculations and round your answer to the nearest whole dollar.) -$2,765 -$2,627 -$2,903 -$2,488 General Forge and Foundry Co. has the option to delay starting this project for one year so that analysts can gather more information about whether demand will be strong or weak. If the company chooses to delay the project, it will have to give up a year of cash flows, because the project will then be only a two-year project. However, the company will know for certain if the market demand will be strong or weak before deciding to invest in it. What will be the expected NPV if General Forge and Foundry Co. delays starting the project? (Note: Do not round intermediate calculations and round your answer to the nearest whole dollar.) $4,636 $5,563 $7,386 $7,401 What is the value of General Forge and Foundry Co.s option to delay the start of the project? (Note: Do not round intermediate calculations and round your answer to the nearest whole dollar.) $7,386 $5,563 $7,401 $4,636

Randall and Arts Inc. is looking at investing in a production facility that will require an initial investment of $500,000. The facility will have a three-year useful life, and it will not have any salvage value at the end of the projects life. If demand is strong, the facility will be able to generate annual cash flows of $250,000, but if demand turns out to be weak, the facility will generate annual cash flows of only $120,000. Randall and Arts Inc. thinks that there is a 50% chance that demand will be strong and a 50% chance that demand will be weak.

If the company uses a project cost of capital of 11%, what will be the expected net present value (NPV) of this project?

-$40,725

-$45,516

-$47,912

-$50,308

Randall and Arts Inc. could spend $510,000 to build the facility. Spending the additional $10,000 on the facility will allow the company to switch the products they produce in the facility after the first year of operations if demand turns out to be weak in year 1. If the company switches product lines because of low demand, it will be able to generate cash flows of $245,000 in years 2 and 3 of the project.

What is the expected NPV of this project if Randall and Arts Inc. decides to invest the additional $10,000 to give themselves a flexibility option? (Note: Do not round your intermediate calculations.)

$38,513

$34,570

$34,662

$77,783

What will be the value of Randall and Arts Inc.s flexibility option?