Your company is planning to produce a new action figure called "Hillary". The initial cost of the production is $100 million which includes the purchase of equipment and the rights to produce the figure. The demand for the product, however, is highly uncertain. If it is a hit, the project will bring in net cash flows of $40 million per year for 5 years (starting at the end of year 1). If it fails, the project will only produce net cash flows of $10 million per year for 2 years (starting at the end of year 1). There is a 60% chance that it will be a hit and a 40% chance that it will be a failure. You will not know whether it is a hit or a failure until the first year's cash flows are in. Suppose the company will have an opportunity to sell the equipment for $60 million once the first year's cash flows are received. The project's opportunity cost of capital is 10%. Calculate the project's NPV ignoring the abandonment option. Estimate the project's NPV with the abandonment option. Calculate the value of the project's abandonment option. Give two examples of how alert financial managers can create real options for a project. Explain why these real options can be valuable