Scenario $2$: Valuation of a project with a delay for test marketing

WaveRider Surfboards is considering a one$-$year test marketing phase for its new surfboard

model, requiring an upfront investment of $$20,000.$ The management team estimates a $50\%$

chance of success, which would indicate strong market demand, and a $50\%$ chance of

underperformance. Should the test marketing prove successful, WaveRider plans to invest

$$500,000$ in year $1$ to construct a facility for mass production, with projected annual profits of

$$250,000$ starting from year $2$ for five years. However, if the test marketing fails, the company

may still proceed with the $$500,000$ investment, but the expected annual cash flows would be

projected to be $$150,000$ from year $2$ for five years. Regardless of the outcome of the test

marketing, WaveRider has the option to discontinue the project at no additional cost in Year

The cost of capital is $10\%.$

What is the project's NPV under Scenario $2?$Scenario $2$: Delay project initiation for test marketing