Markungs Co. is considering a three-year project that will require an initial investment of $45,000. It has estimated that the annual cash flows for the project under good conditions will be $60,000 and $9,000 under bad conditions. The firm believes that there is a 60% chance of good conditions and a 40% chance of bad conditions.

If the firm is using a weighted average cost of capital of 8.0000%, what will be the expected net present value (NPV) of the project?

$54,200

$57,053

$37,084

$34,232

Markungs Co. wants to take a potential growth option into account when calculating the projects expected NPV. If conditions are good, the firm will be able to invest $4,000 in year 2 to generate an additional cash flow of $14,000 in year 3. If conditions are bad, the firm will not make any further investments in the project.

Using the information from the preceding problem, determine what the expected NPV of this project will be when taking the growth option into account.

$77,080

$61,664

$64,747

$58,581

What is the value of Markungs Co.s growth option?