Xcel is considering a project that has a cost of $12mi, and subsequent cash flows of 3.9mi. for the next 5 years. The firm recognizes that if it waits 1 year, it would have more information about the project, but the cost can go up to $13 mi. There is a 70% chance that market conditions will be favorable if Xcel waits a year, in which case the project will generate net cash flow of $4.6mi. for 5 years. There is a 30% chance that market conditions will be poor, in which case the project will generate net cash flow of $2.5mi. for 5 years. Assume the discount rate is 9%.

a.) Calculate NPV of the project if the firm decides to invest today.

b.) Calculate NPV of the project at t= 0 if the firm decides to wait a year.