he Yoran Yacht Company (YYC), a prominent sailboat builder in Newport, may design a new 30 -foot sailboat based on the "winged" keels first introduced on the 12 -meter yachts nat raced for the America's Cup. rst, YYC would have to invest $12,000 at t=0 for the design and model tank testing of the new boat. YYC's managers believe there is a 60% probability that this phase will be uccessful and the project will continue. If Stage 1 is not successful, the project will be abandoned with zero salvage value. he next stage, if undertaken, would consist of making the molds and producing two prototype boats. This would cost $500,000 at t=1. If the boats test well, YYC would go into roduction. If they do not, the molds and prototypes could be sold for $100,000. The managers estimate that the probability is 80% that the boats will 3 ill be undertaken. tage 3 consists of converting an unused production line to produce the new design. This would cost $1 million at t=2. If the economy is strong at this point, the net value of ould be $3 million; if the economy is weak, the net value would be $1.5 million. Both net values occur at t=3, and each state of the economy has a probability of 0.5. YYC's prporate cost of capital is 12% a. Assume this project has average risk. Construct a decision tree and determine the project's expected NPV. Do not round intermediate calculations. Enter your answer in dollars. For example, an answer of $2 million should be entered as 2,000,000. Round your answer to the nearest cent. $ b. Find the project's standard deviation of NPV and coefficient of variation of NPV. Do not round intermediate calculations. Enter your answer for standard deviation in dollars. For example, an answer of $2 million should be entered as 2,000,000. Round the project's standard deviation to the nearest cent and CV to two decimal places. NPV:$ CVNPV: If YYC's average project had a CV of between 1.0 and 2.0, would this project be of high, low, or average stand-alone risk? This project is of risk. he Yoran Yacht Company (YYC), a prominent sailboat builder in Newport, may design a new 30 -foot sailboat based on the "winged" keels first introduced on the 12 -meter yachts nat raced for the America's Cup. rst, YYC would have to invest $12,000 at t=0 for the design and model tank testing of the new boat. YYC's managers believe there is a 60% probability that this phase will be uccessful and the project will continue. If Stage 1 is not successful, the project will be abandoned with zero salvage value. he next stage, if undertaken, would consist of making the molds and producing two prototype boats. This would cost $500,000 at t=1. If the boats test well, YYC would go into roduction. If they do not, the molds and prototypes could be sold for $100,000. The managers estimate that the probability is 80% that the boats will 3 ill be undertaken. tage 3 consists of converting an unused production line to produce the new design. This would cost $1 million at t=2. If the economy is strong at this point, the net value of ould be $3 million; if the economy is weak, the net value would be $1.5 million. Both net values occur at t=3, and each state of the economy has a probability of 0.5. YYC's prporate cost of capital is 12% a. Assume this project has average risk. Construct a decision tree and determine the project's expected NPV. Do not round intermediate calculations. Enter your answer in dollars. For example, an answer of $2 million should be entered as 2,000,000. Round your answer to the nearest cent. $ b. Find the project's standard deviation of NPV and coefficient of variation of NPV. Do not round intermediate calculations. Enter your answer for standard deviation in dollars. For example, an answer of $2 million should be entered as 2,000,000. Round the project's standard deviation to the nearest cent and CV to two decimal places. NPV:$ CVNPV: If YYC's average project had a CV of between 1.0 and 2.0, would this project be of high, low, or average stand-alone risk? This project is of risk
