Opening the new marketing office in Brazil will require an initial investment of $5.00 million According to research on Brazil's mobile technology infrastructure, Ana noted there is a 60% probability that the country's mobile connectivity will be sufficient to generate additional advertising cash flows of $7.50 million per year for the company for the next five years Alternatively, there is a 40% chance that Brazil's mobile Internet connectivity will be insufficient to support Fat Sheep's desired growth in Brazil. In this case, the company expects to generate additional net advertising-related annual cash flows of only $2.50 million for the next five years The project's expected cost of capital is 14.00%, and the risk-free rate is 4%. The project's WACC should be used to discount all cash flows Given this information, the project's expected net present value (NPV) without the consideration of the growth option is After further research, Ana added a few more details to her proposal: If Brazil's Internet connectivity is good, then at the end of Year 3, Fat Sheep should consider investing $3.75 million to purchase an existing Brazilian marketing firm and creating a new subsidiary The new subsidiary is expected to generate $3.00 million of additional annual cash flows in years 4 and year 5 However, if the Internet connectivity in Brazil is inadequate to support Fat Sheep's desired customer growth, then the company will not invest the additional funds in year 3 or earn the expected additional advertising-related cash flows Opening the new marketing office in Brazil will require an initial investment of $5.00 million According to research on Brazil's mobile technology infrastructure, Ana noted there is a 60% probability that the country's mobile connectivity will be sufficient to generate additional advertising cash flows of $7.50 million per year for the company for the next five years Alternatively, there is a 40% chance that Brazil's mobile Internet connectivity will be insufficient to support Fat Sheep's desired growth in Brazil. In this case, the company expects to generate additional net advertising-related annual cash flows of only $2.50 million for the next five years The project's expected cost of capital is 14.00%, and the risk-free rate is 4%. The project's WACC should be used to discount all cash flows Given this information, the project's expected net present value (NPV) without the consideration of the growth option is After further research, Ana added a few more details to her proposal: If Brazil's Internet connectivity is good, then at the end of Year 3, Fat Sheep should consider investing $3.75 million to purchase an existing Brazilian marketing firm and creating a new subsidiary The new subsidiary is expected to generate $3.00 million of additional annual cash flows in years 4 and year 5 However, if the Internet connectivity in Brazil is inadequate to support Fat Sheep's desired customer growth, then the company will not invest the additional funds in year 3 or earn the expected additional advertising-related cash flows
