Growth Option: Decision-Tree Analysis 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 $27,000 per year for 2 years. If demand is bad (60% probability), then the net cash flows will be $3,000 per year for 2 years Fethe's cost of capital is 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 10000 b, If Pethe 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 Select the correct decision tree. 5 A B 4 40% Po Good 20 O 27000 27000 27000 27000 - 20.000 (55) 40% Pb Good 1 2 20 000 3.000 3.000 3000 3000 - 20000 (5) 20.000 3000 3000 B BOSP O 20000 27000 27.000 D 40% Pos 1 20 000 27000 27000 27000 27.000 20000 (45) 40 Good 2 30.000 27000 27000 27000 27000 20.000 (4) Ba 10 Pro 60% Prob 60% Prob. 20.000 3000 3.000 0 0 20.000 27000 27.000 0 0 C D 0 1 4 40% Prob Good = 14% 0 1 2 3 20.000 27.000 27.000 27.000 27.000 20.000 (4) 40% Prob Good 2 3 20.000 27000 27000 27000 27000 - 20.000 (r = 49) Bad 60% Prob Bad 60% Proh 20.000 3.000 3.000 3.000 3.000 20.000 3.000 3.000 0 0 The correct graph is C c 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 $ -11394