Use this information for the following 5 questions. Important: Read all of the questions pertaining to this problem before starting any calculations! You don't want to waste time doing calculations you don't need! HCB, Inc. is considering expanding its educational offerings into a welding certificate with welding instructional facilities in Knoxville. The initial cost is $500,000 and if there is sufficient interest (probability 70% ), the cash flows will be $2 million per year for 3 years. If there isn't much interest (probability 30% ), cash flows will be $100,000 per year for 3 years. After 3 years, HCB can expand its operations to Nashville with a higher initial cost of $700,000 (because prices are higher in Nashville) to be paid in Year 3 and will receive the same cash flows it received in Knoxville but starting in Year 4 . That is, if the cash flows were $2 million a year in Knoxville, they would also be $2 million a year in Nashville. If they were $100,000 a year in Knoxville, they would also be $100,000 a year in Nashville. HCB will only expand into Nashville at Year 3 if it is profitable to do so. HCB's cost of capital is 10% and the risk-free rate is 6%. The $500,000 and $700,000 required investment costs are contractual amounts so they are risk-free. 12. Suppose the value of the Knoxville project is $1 million and the value of the Knoxville and Nashville projects together is $1.6 million. Which one of the foliowing statements is true? a. The value of the investment timing option is $1 million. b. The value of the investment timing option is $600,000. c. The value of the investment timing option must be $500,000. d. The value of the growth option must be $600,000. e. The value of the growth option must be $2.6 million. Use this information for the following 5 questions. Important: Read all of the questions pertaining to this problem before starting any calculations! You don't want to waste time doing calculations you don't need! HCB, Inc. is considering expanding its educational offerings into a welding certificate with welding instructional facilities in Knoxville. The initial cost is $500,000 and if there is sufficient interest (probability 70% ), the cash flows will be $2 million per year for 3 years. If there isn't much interest (probability 30% ), cash flows will be $100,000 per year for 3 years. After 3 years, HCB can expand its operations to Nashville with a higher initial cost of $700,000 (because prices are higher in Nashville) to be paid in Year 3 and will receive the same cash flows it received in Knoxville but starting in Year 4 . That is, if the cash flows were $2 million a year in Knoxville, they would also be $2 million a year in Nashville. If they were $100,000 a year in Knoxville, they would also be $100,000 a year in Nashville. HCB will only expand into Nashville at Year 3 if it is profitable to do so. HCB's cost of capital is 10% and the risk-free rate is 6%. The $500,000 and $700,000 required investment costs are contractual amounts so they are risk-free. 12. Suppose the value of the Knoxville project is $1 million and the value of the Knoxville and Nashville projects together is $1.6 million. Which one of the foliowing statements is true? a. The value of the investment timing option is $1 million. b. The value of the investment timing option is $600,000. c. The value of the investment timing option must be $500,000. d. The value of the growth option must be $600,000. e. The value of the growth option must be $2.6 million