Top Wireless is considering making a telecom services investment in China. It knows that the investment will cost $1 billion and generate $80 million in annual cashflows for 15 years. The cost of capital for the project is 10%. The proponents of expansion are arguing that the potential market is huge. If the project generates higher cashflows than anticipated, Top could acquire exclusive rights to be a service provider for 12 years. The expansion will cost $1.5 billion with expected cash flows of $140 million for the next 12 years. A scenario analysis of the various expected cashflows reveals considerable uncertainty in the potential cash flows with a standard deviation of 50%. Cost of capital for the expansion is also 10%. Ignore the cost of delay. Assume the following term structure of risk-free rates: 20-year: 13% 15-year: 10% 12-year: 9% 1-year: 3% Required: a. Estimate the net present value of the initial investment. b. Estimate the value of the expansion option.