Jenny Rene, the CFO of Asor Produets, Inc. has just completed an evaluation of a proposed capital expenditure for equipment that would expand the firm's manufacturing capacity. Using the traditional! NPV methodology, she found the project unacceptable because

NPV = -$1,700 <0

Before recommending rejection of the proposed project, she has decided to assess whether there might be real options embedded in the firm's cash flows. Her evaluation uncovered three options:

Option I:AbandonmentThe project could be abandoned at the end of 3 years, resulting in an addition to NPV of $1200.

Option 2:Growth-Ifthe projected outcomes occurred, an opportunity to expand the firm's product offerings further would become available at the end of 4 years. Exercise of this option is estimated to add $3,000 to the project's NPV.

Option 3: TimingCertain phases of the proposed project could be delayed if market and competitive conditions caused the firm's forecast revenues to develop more slowly than planned. Such a delay in implementation at that point has a NPV of $10,000.

Jenny estimated that there was a 25% chance that the abandonment option would need to be exercised, a 30% chance that the growth option would be exercised, and only a 10% chance that the implementation of certain phases of the project would affect timing.

Use the information provided to calculate the value of the managerial options implicit in Asor Products' proposed equipment expenditure. On the basis of your findings in pat a, what action should Jenny recommend management with regard to the proposed equipment expenditure?