Growth Option: Option 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 $25,000 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 is 10%. a. What is the expected NPV of the project? Round your answer to the nearest dollat. 5 b. U Fethe makes the investrient 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 thes case, the cach flows that occurred in Years 1 and 2 will be repeated (so if demand was good in Years 1 and 2 , it will contincie to be good in Years 3 and 4 ). Use the Biack.Scholes model to estimate the value of the option. Assume the variance of the project's rate of fetum is 0.3815 and that the risk-free rate is 8.5. Do not round intermetiate calculations, Round your answers to the nearest dollar. Use combuter soltware packages, such as Maniab of Excel, to salve this groblem. Value of the grewth option $ (3) Value of the entire aroject: 5 Growth Option: Option 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 $25,000 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 is 10%. a. What is the expected NPV of the project? Round your answer to the nearest dollat. 5 b. U Fethe makes the investrient 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 thes case, the cach flows that occurred in Years 1 and 2 will be repeated (so if demand was good in Years 1 and 2 , it will contincie to be good in Years 3 and 4 ). Use the Biack.Scholes model to estimate the value of the option. Assume the variance of the project's rate of fetum is 0.3815 and that the risk-free rate is 8.5. Do not round intermetiate calculations, Round your answers to the nearest dollar. Use combuter soltware packages, such as Maniab of Excel, to salve this groblem. Value of the grewth option $ (3) Value of the entire aroject: 5