13-1 a. Project A requires $9 million initial capital outlay at T=0, with WACC = 11%, and cash flows as shown below in millions. There is 50% chance that the Project A will generate $6 million each year for 3 years, and 50% chance to generate $1 million each year for 3 years, what is the expected NPV for the Project A, and will the Project be accepted? 1 50% Prob. 2 + 6 3 + 6 6 -9 + + 1 50% Prob. 1 1 b. If the project is hugely successful, $10 million will be spent at the end of Year 2, and the new venture will be sold for $20 million at the end of Year 3, as shown below, what is the expected NPV for the Project A, and will the Project A be accepted? 0 50% Prob. 6 2 + 6 -10 -4 + 1 3 + 6 +20 26 + 1 -9 50% Prob. 1 C. What is the value of growth option (the difference between NPV with growth option and without option, using 0 if the NPV is negative)? 13-1 a. Project A requires $9 million initial capital outlay at T=0, with WACC = 11%, and cash flows as shown below in millions. There is 50% chance that the Project A will generate $6 million each year for 3 years, and 50% chance to generate $1 million each year for 3 years, what is the expected NPV for the Project A, and will the Project be accepted? 1 50% Prob. 2 + 6 3 + 6 6 -9 + + 1 50% Prob. 1 1 b. If the project is hugely successful, $10 million will be spent at the end of Year 2, and the new venture will be sold for $20 million at the end of Year 3, as shown below, what is the expected NPV for the Project A, and will the Project A be accepted? 0 50% Prob. 6 2 + 6 -10 -4 + 1 3 + 6 +20 26 + 1 -9 50% Prob. 1 C. What is the value of growth option (the difference between NPV with growth option and without option, using 0 if the NPV is negative)