Intro The University of Crookington wants to offer one of its courses online. It costs $36,000 to create the necessary infrastructure, and $15,000 to develop the digital content for the first course. The University estimates that there is a 70% probability of the course being successful, in which case annual free cash flows of $8,000 can be expected for 10 years. Otherwise, annual free cash flows of only $5,000 can be expected over the same time period. The University has a weighted average cost of capital of 11% and estimates that the online course would be as risky as its existing assets. Part 1 What is the NPV of the project? -9186.45 Correct Attempt 2/10 for 10 pts. Initial cash flow: CFO CFinfrastructure +CPcontent= - 36,000 - 15,000 = Success: NPVsuccess =CFO+KW CF 1 1 (1+KW) 8,000 1 = -51,000 + 1 0.11 (1+0.11) = -3,886 Failure: 5,000 1 NPV failure - 51,000 + 1 0.11 10 (1+0.11)) = -21,554 Expected NPV: + E(NPV) = Psuccess NPV success + Pfailure NPV failure 0.7 3,886 + (1 0.7) = -9,186 21,554 Part 2 Attempt 2/10 for 10 pts. The University will observe the demand for the first online course over two years. If the course turns out to be successful, the University can offer another 8 courses online by investing $15,000 each for content development in two years and then earning $8,000 per year for 10 years. No additional investment in infrastructure will be required. What is the NPV of the project including this option? 0+ decima Previous answers: 91537 Submit