How to calculate value of growth option and value of the entire project

eBook Growth Option: Option Analysis ethe's Funny Hats is considering selling trademarked, orange-haired curly wigs for University of Tennessee football games. The purchase cost for a 2-year anchise 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% robability), then the net cash flows will be $5,000 per year for 2 years. Fethe's cost of capital is 10%. . What is the expected NPV of the project? Round your answer to the nearest dollar. $ 2561.9 If Fethe 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 if demand was good in Years 1 and 2, it will continue to be good in Years 3 and 4). Use the Black-Scholes model to estimate the value of the option. Assume the variance of the project's rate of return is 0.305 and that the risk- free rate is 6%. Do not round Intermediate calculations. Round your answers to the nearest dollar Use computer software packages, such as Minitab or Excel, to solve this problem. Value the growth option: Value of the entire project: $