3. LLISTUI LUI IULUI! Purple Whale Inc. Co. is planning to add a new product line to make iPlanes. However, Purple Whole Inc. is considering the possibility of abandoning the project if the demand for the new product is low. In the following decision tree table. (1), (2) and (3) represent decision points, also known as decision nodes or stages. The dollar value to the right of each decision node represents the net cash flow at that point, and the cash flows shown under t = 3, 4, and 5 represent the cash inflows if the project is pushed on to completion If Purple Whale Inc. Co decides to launch the new line for iPlanes at Stage (1), then it will spend $60,000 on the marketing study. If the marketing study yields positive results, then the firm will spend $200,000 on the prototype. If the prototype works well, then the firm will spend several millions mare at Stage (3) to build a production planti Suppose that as an analyst at Purple Whale Inc. you have to analyze sequential decisions. By studying the following decision tree, you learn which of the following? Check all that apply. There is a 5% probability that the marketing study will product positive results There is a 5% probability that the marketing study will produce negative results. There is a 55% probability that the marketing study will produce positive atuts Our the project is canceled after Stage (1), the cost to Purple Whale Inc. Co will be the $60,000. Complete the decision tree table by calculating the net present values (NPV) and joint probabilities, as well as products of joint probabilities and NPV for each decron branch. Assume that the weighted average cost of capital (WACC) 95 for all decision branches. HintUse either a spreadsheet program's functions or a financial calculator for this task. Round the NPVs to the nearest dollar and remember to enter the minus sign if a value is negative Note: All cash amounts in the following table are in thousands of dollars Step Stenn Sten 1 Sten 2 Sent Steo 5 There is a 55% probability that the marketing study will produce positive results if the project is canceled after Stage (1) the cost to Purple Whole Inc. Co will be the $60,000 Complete the decision tree table by calculating the net present values (NPV) and joint probabilities, as well as products of joint probabilities and NPVS for each decision branch Assume that the weighted average cost of capital (WACC) is 9% for all dechion branches Hint: Use either a spreadsheet program's functions or a financial calculator for this task. Round the NPVs to the nearest dollar and remember to enter the minus sign if a value is negative Note: All cash amounts in the following table are in thousands of dollars Step 4 Step 0 Step 1 Step 2 Step 3 Step 5 2nd Invest Joint Prob (6) NPV XJ ($) 1st Invest NPV ($) 13,666 Prob Inflow 52.25 7.140 $20,065 $7,000 959 Prob 3rd Invest (2) 55% -$10,269 (2) 35%-$10,000 (2) 10% stop $0 -$200 (3) $4,761 $8,237 (3) $1,900 32,345 (3) 50 50 50 50 (1) -560 30 59 Stop 50 Expected NPV Based on your calculations, you recommend that Purple Whale Inc. Q Search the course 0 6 x wil graduate vw positives to Purple Whene. Co will be 0.000 AZ . VI and your peces, products of you and me of capital (WACC) for the street und the test drive them so do Step Sep steps NIY Probe NP Jet Pro (8) 7.140 ow 3) 14.10.2005 ). 2) - Hom Save & Continue o 8 9 7 0 P K N M 0 Alt