Solve the questions below

Decision tree analysis Demand Scenario b Abandon/quit 4.0 400/0 15% 15% 30% Real option type Real option expiration, in years Discount rate (WACC) Year 1 salvage value, after tax ($ millions) -25 -25 -25 -25 1 15 7 5 2 2 15 7 2 3 15 7 2 -10 4 15 7 -7.5 -10 5 15 7 -7.5 -10 Values in millions of dollars except for percentages Q5 Compute the expected NPV of the project based using the data above but ignoring the option to abandon. Q6 Should the manager accept the project if they ignore the option to abandon? Q7 Compute the standard deviation of the project NPVs across the different scenarios when ignoring the real option. Create a new cash flow schedule that optimally exercises the option to abandon. Q8 In which demand scenario(s) should management abandon the project? Q9 What is the new project expected NPV if you allow the real option to be exercised? QI() What is the new standard deviation of project NPVs if you allow the real option to be exercised? QI 1 How do the expected NPVs and standard deviations compare to each other? Q12 The current discount rate is the WACC. How should you consider changing the discount rate based on your answer in QI 1 ?