You are examining a new project. You expect to sell 5,000 units per year at $100 profit per item for the next 10 years. In other words, the annual cash flow is projected to be $100 x 5,000 = $500,000. Your discount rate is 15% and the initial investment cost is 2,000,000. Suppose you think it is likely that expected number of units sold will be revised upward to 8,000 units if the first year is successful and revised downward to 2,000 if the first year is not successful. Each event has equal probability (therefore, todays expectation is 5,000 units). What is the value of the option to abandon? Select one: O 1.509,384 O 2.954,317 O 3.237,254 O 4.158,634 O 5.285,792 O 6.746,638

What is the NPV of the project now? Select one: O 1.285,792 O 2.954,317 O 3.509,384 O 4.746,638 O 5.158,634 O 6.237,254

Now suppose the scale of the project can be tripled in one year and you can produce and sell three times as many units. You would want to expand only when the project is a success. This implies that if the project is a success, projected number of units sold after expansion will be 24,000. Again assuming that success and failure have equal probability, what is the value of the option to expand? Note that abandon option still exists. Select one: O 1.4,638,725 O 2.2,327,535 O 3.6,975,901 O 4.11,451,801 O 5.3,892,087 O 6.3,319,363

Again assuming that success and failure have equal probability, what is the NPV of the project now? Note that abandon option still exists. Select one: O 1.3,153,564 O 2.4,638,725 O 3.4,066,001 O 4.3,892,087 O 5.11,451,801 O 6.6,975,901