You are considering investing in a project that has a required cost of $14million that must be paid whenever you initially invest (time 0 if youinvest today). There is a 30% chance that the demand for your product will be high,and you will receive cash flows of $2.8 million per year for 10 yearsbeginning one year from the time you invest. There is a 50% chance the demand will be moderate, and you willreceive $2.4 million per year for 10 years. There is also a 20% chance that demand will be low, and you willreceive $1.6 million per year for 10 years. The discount rate is 6%

If you choose to invest today, you have the option to expand the project in the future. If you choose to do this, you will not be able to expand until year 5 (soyou would pay the cost of expansion at year 5) and your cash flows willnot increase until year 6(you will increase CF6 through CF10). The cost of the expansion will be $10 million in year 5 , and willincrease all cash flows remaining after year 5 by 125% of what theywould have been otherwise. What is the value of this option to expand?