You now learn that Brady Corp. has an option to expand at the end of year 1. There is a 60% chance Brady will decide to expand. If Brady decides to expand at year 1, the cost of the expansion will be CNY30,000. Brady will depreciate this cost over 2 years using SL depreciation to zero. The pre-tax salvage value of the expansion (at year 3) will be CNY10,000.

• The expansion will allow Brady to sell an extra 25,000 units per year (in years 2 and 3) at a price of CNY4/unit. The variable cost will be CNY1/unit.
  • There will be no additional fixed costs for the expansion and no additional working capital requirement for the expansion.
• The project WACC_CNY is 12%. The tax rate in China is 15%.
• NPV not to expand = CNY101,167
• NPV of the option to expand = CNY78,857
• What is the E[NPV] of the entire project?