Option: Decision-Tree Analysis Fethe's Funny Hats is considering selling trademarked, orange-haired curly wigs for University of Tennessee football games. The purchase cost for a 2 year franchise to tell the wigs is $20,000. If demand is good (40% probability), then the net cash flows will be $28,000 per year for 2 years. If demand is bad (60% probability), then the net cash flows will be $4,000 per year for 2 years. Fethe's cost of capital is 139 Do not round Intermediate calculations a. What is the expected NPV of the project Negative value is... b. 1F Fethe makes the investment today, then it will have the option to renew the franchise fee for 2 more years at the end of Year 2 for an additional payment of $20,000. In this case, the cash flows that occurred in Years 1 and 2 will be repeated (so if demand was good in Years 1 and 2, it will continue to be good in Years 3 and 4). Write out the decision tree Note: The franchise fee payment at the end of Year 2 is known, so it should be discounted at the risk free rate, which is 8%. Select the correct decision tree. 40% Pob Good 20000 4000 4000 4000 4000 - 20.000 (39) 40% Pob Good TU 0 20000 25000 28000 28.000 28.000 20 000( 184) 405 Pos Good 105 2 3 20.000 28.000 20000 20000 20000 - 20000 (35) Bad 60% Prob - 20 000 28000 28.000 Bu 80P Bad 80%. Prab - 20000 2000 4000 0 0 - 20000 4000 4000 4000 4000 D 40520000 20000 20000 20000 20.000 Good 20.000 = 13) 3 - 20 000 000 000