You are given the following information on the best guess of related outcomes for a project. The initial cash outlay for developing and market testing the product over the year IS $60M. Following the test, the company will spend another $420M to put the productive capabilities in place at the END of the year. If the test is successful, which is expected to have a probability of 0.75, the expected cash flows will be $140M for the first year of production and will grow at an annual rate of 10% for the remaining four years of production. If the test fails, the expected annual cash flows will be $65M for the 5-year production phase. The discount rate is 14%.

(a) Calculate the NPV of the project at time 0 assuming that the project will be implemented regardless of the outcome of the test. Given that the value at the END of the testing year of the 5-year $65M annuity is $223.15M. Answer must equal <$-2.89M>

(b) Say, you are given the option to upgrade by building a better production facility at a cost of $490M if the test fails. The upgraded facility is expected to generate annual cash flows of $90M for five years. Note that the base facility and cash flows estimates will apply if the test is successful. Calculate the value of the project at time 0 assuming that it includes the option to upgrade. Answer must equal <$0.59M>

**I'm sorry but I will have to thums down if it does't match the answer, Please show work