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Singh Development Co . is deciding whether to proceed with Project X . The after - tax cost would be $ 7 million in Year

Singh Development Co. is deciding whether to proceed with Project X. The after-tax cost would be $7 million in Year 0. There is a 50% chance that X would be hugely successful and would generate annual after-tax cash flows of $5 million per year during Years 1,2, and 3. However, there is a 50% chance that X would be less successful and would generate after-tax cash flows of only $1 million per year for the 3 years. If Project X is hugely successful, it would open the door to another investment, Project Y, which would require an after-tax outlay of $7 million at the end of Year 2. Project Y would then be sold to another company netting $14 million after taxes at the end of Year 3. Singhs WACC is 13%.
If the company does not consider real options, what is Project Xs expected NPV? Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to three decimal places.
$
million
What is Xs expected NPV with the growth option? Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to three decimal places.
$
million
What is the value of the growth option? Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to three decimal places.
$
million

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