help!

Firm EFG has come up with a new writing pad prototype and is ready to go ahead with pilot production and test marketing. The pilot production and test marketing phase will last for one year and cost $500,000. Your management team believes that there is a 50% chance that the test marketing will be successful and that there will be sufficient demand for the new writing pad. If the test-marketing phase is successful, then Firm EFG will invest $3 million in year one to build a plant that will generate expected annual after-tax cash flows of $400,000 in perpetuity beginning in year two. If the test marketing is not successful, Firm EFG can still go ahead and build the new plant, but the expected annual after-tax cash flows would be only $200,000 in perpetuity beginning in year two. Firm EFG has the option to stop the project at any time and sell the prototype writing pad to an overseas competitor for $300,000. Firm EFG cost of capital is 10%. a) Assume that Firm EFG ignores the pilot production and test marketing and go ahead and build their manufacturing plant immediately. Assuming that the probability of high or low demand is still 50%, what is the NPV of the Project? b) What is the NPV with the pilot production and test marketing with the option to stop? c) What is the value of the option to do pilot production and test marketing and with the option to stop