Kinston Industries has come up with a new mountain bike 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 will cost $500,000 today. The management team believes that there is a 50% chance that the pilot production and test marketing will be successful and that there will be sufcient demand for the new mountain bike. If the pilot production and test marketing phase is successful, then Kinston Industries will invest $3 million in year one to build a plant that will generate expected annual after-tax cash ows of $400,000 in perpetuity beginning in year two. If the pilot production and test marketing is not successful, Kinston can still go ahead and build the new plant, but the expected annual after-tax cash ows would be only $200,000 in perpetuity beginning in year two. Kinston has the Option to stop the project at any time and sell the prototype mountain bike to an overseas competitor for $300,000. Kinston's cost of capital is 10%. ll) Assume that Kinston has the ability to ignore the pilot production and test marketing and to go ahead and build their manufacturing plant immediately and that the probability of high or low demand would still be 50%. The NPV of going ahead and building today (No pilot production and test marketing option) is closet to: 3) -3,000,000 b) -500,000 c) 0 (1) 100,000 12) The NPV with pilot production and test marketing option is closest to: a) -3,000,000 b) -500,000 c) 0 (1) 100,000