Work Station Inc: manufactures office furniture. The firm is interested in "ergonomic" products that are designed to be easief on the bodies of aitice workiss who suifer from ailments such as back and neck pain due to sitting foc long periods. Unfortunately, customer acceptance of erganomic furniture tents to ungredictoble, so a wide range of market response is possible. Management has made the following two-year prabablistic estimate of the cash flows associated with the project arranged in decision troe format ($000) Work Station is a relatively small company and would be seriously damaged by any project that lost more than $1.5 million, The firm's cost of capital is 184 . Assumin Vork Station Inc, has an abandonment option at the end of the first year under which it will recover $5 mallion of the initial investment in year 2 . Develop a probability distribution for NPV based on the initial forecast. In other words, calculate the project's NPV along each path of the decision tree and the associated probability. Enter your answers for NPV in thousands. For example, an answer of $1.2 thousand should be entered as 1.2, not 1,200 . Round your answe for NVP to one decimal place, Use a minus sign to indicate a negative NPV. Do not round intermediate calculations. Round PVF values in intermediate calculaticns ti four decimal places. Round your answers for probability to two decimal places. NPV ($000) Probability b. Calculate the project's expected NPV. Enter your answer in thousands. For example, an answer of $1,2 thousand should be entered as 1.2, not 1,200 . Round your answer to one decimal place. Do not round intermediate calculations. Round PVF values in intermediate calculations to four docimal places. thousand What is the value of the ability to abandon the project? Enter your answer in thousands, For example, an answer of $1,2 thousand should be entered as 1.2, not 1,200 . Round your answer to one decimal place. Do not round intermediate calculations. Round pVF values in intermediate calculations to four decimal places. 1 . thousand c. Analyze your results and make a recommendation about the project's advisability considering both expected NPV and risk. How has the abendonment option affected the project's nisk characteristics? Work Station Inc: manufactures office furniture. The firm is interested in "ergonomic" products that are designed to be easief on the bodies of aitice workiss who suifer from ailments such as back and neck pain due to sitting foc long periods. Unfortunately, customer acceptance of erganomic furniture tents to ungredictoble, so a wide range of market response is possible. Management has made the following two-year prabablistic estimate of the cash flows associated with the project arranged in decision troe format ($000) Work Station is a relatively small company and would be seriously damaged by any project that lost more than $1.5 million, The firm's cost of capital is 184 . Assumin Vork Station Inc, has an abandonment option at the end of the first year under which it will recover $5 mallion of the initial investment in year 2 . Develop a probability distribution for NPV based on the initial forecast. In other words, calculate the project's NPV along each path of the decision tree and the associated probability. Enter your answers for NPV in thousands. For example, an answer of $1.2 thousand should be entered as 1.2, not 1,200 . Round your answe for NVP to one decimal place, Use a minus sign to indicate a negative NPV. Do not round intermediate calculations. Round PVF values in intermediate calculaticns ti four decimal places. Round your answers for probability to two decimal places. NPV ($000) Probability b. Calculate the project's expected NPV. Enter your answer in thousands. For example, an answer of $1,2 thousand should be entered as 1.2, not 1,200 . Round your answer to one decimal place. Do not round intermediate calculations. Round PVF values in intermediate calculations to four docimal places. thousand What is the value of the ability to abandon the project? Enter your answer in thousands, For example, an answer of $1,2 thousand should be entered as 1.2, not 1,200 . Round your answer to one decimal place. Do not round intermediate calculations. Round pVF values in intermediate calculations to four decimal places. 1 . thousand c. Analyze your results and make a recommendation about the project's advisability considering both expected NPV and risk. How has the abendonment option affected the project's nisk characteristics
