On January1, 20X1, Pujols Industries has the opportunity to invest in a project with anuncertain outcome.The product might bea hit and very profitable, or it might not. To put specific numbers to it,there is a 50 percent chance that the payoffswillbe an annuity of $1,500 peryear for three years.There is also a 50percent chance that the payoffs will be an annuity of $500 per year for threeyears.The payoff on December 31, 20X1 is when Pujols discovers whether the product is a hit or not.If the payoff is $1,500, then the other years will also be $1,500.If the payoff is $500, then the other years will also be $500.Because Pujolsdoes not know whether the product will be a hit or not, Pujols assigns 50/50 chances to the $1,500 and the $500.The alternative use ofmoney is to invest it at 10 percent.One point of this exercise in an accounting class is that accounting is more-or-less intended to be that revelation at the end of each year that describes how the project is turning out.a. What is the present value of the project?b. As it happens, the land, building, andequipment have alternative uses, which means that anytime during the projectPujols could stop the project and turn to a new project (project 2). If numberswere put to it, Pujols anticipates that this possible other project has apresent value of $1,600 as of the end of year 20X1. This means that Pujols would have the newproject (project 2) worth $1,600 plus the $500 (or $1,500) outcome if theyswitched projects on December 31, 20X1.What is the present value as of January 1, 20X1 of the first projectincluding the option to move to the new project (project 2) at the end of 20X1?c. What is the value as of January 1, 20X1 of being able to opt out of this first project if it turns out to have a low payoff?The value of this option is the increase in present value of part b. compared to part a. I think this is sometimes called the value of the abandonment option.