The NPV of a new video game, Petty Larceny $1,$ is $-$$$2M$ after discounting all expected cash

flows. However, if high demand in the market evolves, Petty Larceny $2$ is a possible follow$-$on

opportunity in two years. In Year $2$ it will cost $$12M$ to start Petty Larceny $2,$ which will

produce a one$-$time cash flow of $$16M$ in year $3.$ The firm's cost of capital is $12\%$ and the

risk$-$free rate is $4\%.$ Estimated volatility for the project is $35\%.$ What is the Petty Larceny $1$

NPV with the follow$-$on investment option?

$-$$$1\mathrm{.}35M$

$$0\mathrm{.}00M$

$$0\mathrm{.}35M$

$$2\mathrm{.}65M$