Wouk station Ine. manufactures office furmoture. The firm is internuted in "ergonomic' prodocts that are designed to the essier on the bodies of olfice waknrs whe wifler lange of market response is possible. Management has made the following two-vear probabalistic estimate of the cash flows asseciated with the project arrangad in thecision trae farmat (1000). Work Station is a relatively small company and would be seriously damaged by any project that lost more than $1.5 minion, The firm's cost of eapitalis 16%. Assume Work Station Inc. has an abandonment aption at the end of tha first year ander which it will recover 55 million of the inisial investment in year 2. a. Develop a probability distribution for NPV based on the initial forecost. In other words, calculate the project's NPV along esch path of the decision tree and the associated probability. Enter your answers for NPY in thousands. For example, an answer of $1.2 thousand should be entered as 1.2, not 1,200 : Round your answei for NVP to one decimal place. Use a minus sign to indicate a negative NPV. Do not reund intermediate calculatons. Round FvF velues in intermed ate calculations to four decimal places. Round your answers for probabilty to two decimal places. b. Calculate the project's expected NPY. Enter your answer in thousands. For example, an answer of $1.2 thousand should be entered as 1.2, nok 1.200. Round youir answer to one decimal place. Do not round intermediate calculations. Round pyF values in intermediate calculations to four decimat places. 5 . thousand What is the valise of the obility 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 PYF values in intermediate calculakions to four decimal piaces: thousand Analyze your resules and make a recommendation about the project's advisability considering both expected NPV and risk. How has the abandonment option affected the project's risk characteristies? Wouk station Ine. manufactures office furmoture. The firm is internuted in "ergonomic' prodocts that are designed to the essier on the bodies of olfice waknrs whe wifler lange of market response is possible. Management has made the following two-vear probabalistic estimate of the cash flows asseciated with the project arrangad in thecision trae farmat (1000). Work Station is a relatively small company and would be seriously damaged by any project that lost more than $1.5 minion, The firm's cost of eapitalis 16%. Assume Work Station Inc. has an abandonment aption at the end of tha first year ander which it will recover 55 million of the inisial investment in year 2. a. Develop a probability distribution for NPV based on the initial forecost. In other words, calculate the project's NPV along esch path of the decision tree and the associated probability. Enter your answers for NPY in thousands. For example, an answer of $1.2 thousand should be entered as 1.2, not 1,200 : Round your answei for NVP to one decimal place. Use a minus sign to indicate a negative NPV. Do not reund intermediate calculatons. Round FvF velues in intermed ate calculations to four decimal places. Round your answers for probabilty to two decimal places. b. Calculate the project's expected NPY. Enter your answer in thousands. For example, an answer of $1.2 thousand should be entered as 1.2, nok 1.200. Round youir answer to one decimal place. Do not round intermediate calculations. Round pyF values in intermediate calculations to four decimat places. 5 . thousand What is the valise of the obility 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 PYF values in intermediate calculakions to four decimal piaces: thousand Analyze your resules and make a recommendation about the project's advisability considering both expected NPV and risk. How has the abandonment option affected the project's risk characteristies
