MC Corp. is considering the launch of a new product but there is some uncertainty about how the product will actually be received. Accordingly, your junior analyst has provided you with three sets of market conditions and estimated the probability of each set of circumstances (we learn after one year what will happen from that point forward). Starting the project today would incur costs of $15,000,000, the appropriate cost of capital is 10%. Good: The product is very well received, and profits are estimated to start at $1,300,000 in year 1 with 30% annual growth for 2 years and then slowing to 4% growth into the foreseeable future (at least 30 years). The probability of this occurring is estimated to be 30%. Average: Profits start at $1,250,000 in year 1 and grow continuously at 3% for the foreseeable future. Probability of occurring is 50% Poor: Profits start at $1,000,000 in year 1 but then drop off by 12% each year into the foreseeable future. Probability of occurring is 20%.

a. What is the NPV of this project?

b. If you wait for one year so that there would be no uncertainty about the project's outcome before investing, what is the project's NPV? What is the value of the real option to wait?