PTT Wireless is considering making an investment in India (we call this as the original investment. An initial estimate of the investment is as follows:

- The project has a 10-year life, with the free cash flow equal to $150 million next year. The free cash flows grow at 2.5% every year until the end of the project.

- The initial investment is $1.1 billion.

- The cost of capital of the project is 11%.

This investment is considered as a toehold one, which gives you the option to expand the operations to other Asian countries (we call this as the expansion option). The expansion analysis is as follows:

- You have 10 years of exclusive rights for this expansion (following the original investment).

- The expansion costs $2 billion.

- The expansion generates free cash flows of $8 million for 20 years. There is a substantial uncertainty about this expansion. The variance is 45%. - The cost of capital of the project is the same 11%. The risk-free rate is 5.5%.

a. Estimate the NPV of the original investment.

b. Estimate the value of the expansion option.