Aa 8. Decision tree with multiple decision points Aa Free Spirit Industries Inc. is planning to add a new product line to make iGadgets. However, Free Spirit Industries 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 3,4, and 5 represent the cash inflows if the project is pushed decision node represents the net cash flow at that point, and the cash flows shown undert on = to completion. If Free Spirit Industries Inc. decides to launch the new line for iGadgets 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 mo nore at Stage (3) to build a production plant. Suppose that as an analyst at Free Spirit Industries Inc. you have to analyze sequential decisions. By studying the following decision tree, you learn which of the following? Check all that apply. If the project is canceled after Stage (1), Free Spirit Industries Inc.'s costs will be $260,000. If the project is canceled after Stage (1), the cost to Free Spirit Industries Inc. will be the $60,000. If the project is canceled after Stage (1), Free Spirit Industries Inc.'s costs will be $10,269,000. There is a 5% probability that investment in a production plant will yield bad results. products of joint probabilities and NPVS for Complete the decision tree table by calculating the net present values (NPVS) and joint probabilities, as well as each decision branch. Assume that the weighted average cost of capital (WACC) is 9% for all decision branches. Hint: Use either a spreadsheet program's functions or a financial calculator for this task. Round the NPVS to the nearest dollar and remember to enter the minus sign if a value is negative. Note: All cash amounts in the following table are in thousands of dollars Step 2 Step 5 Step 0 Step 1 Step 3 Step 4 NPV ($) NPV x Joint 1st Invest Prob 2nd Invest Prob 3rd Invest Inflow Inflow Inflow Joint Prob (%) Prob ($) (2) 55 % -$10,269 (3) $4,761 $8,237 $20,065 $10,000 -$200 (3) $1,900 $2,345 $7,800 95% (2) 35% (1) -$60 (3) $0 $0 $0 (2) 5% Stop $0 $0 $0 $0 5% Stop Expected NPV Based on your calculations, you recommend that Free Spirit Industries Inc. Aa 8. Decision tree with multiple decision points Aa Free Spirit Industries Inc. is planning to add a new product line to make iGadgets. However, Free Spirit Industries 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 3,4, and 5 represent the cash inflows if the project is pushed decision node represents the net cash flow at that point, and the cash flows shown undert on = to completion. If Free Spirit Industries Inc. decides to launch the new line for iGadgets 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 mo nore at Stage (3) to build a production plant. Suppose that as an analyst at Free Spirit Industries Inc. you have to analyze sequential decisions. By studying the following decision tree, you learn which of the following? Check all that apply. If the project is canceled after Stage (1), Free Spirit Industries Inc.'s costs will be $260,000. If the project is canceled after Stage (1), the cost to Free Spirit Industries Inc. will be the $60,000. If the project is canceled after Stage (1), Free Spirit Industries Inc.'s costs will be $10,269,000. There is a 5% probability that investment in a production plant will yield bad results. products of joint probabilities and NPVS for Complete the decision tree table by calculating the net present values (NPVS) and joint probabilities, as well as each decision branch. Assume that the weighted average cost of capital (WACC) is 9% for all decision branches. Hint: Use either a spreadsheet program's functions or a financial calculator for this task. Round the NPVS to the nearest dollar and remember to enter the minus sign if a value is negative. Note: All cash amounts in the following table are in thousands of dollars Step 2 Step 5 Step 0 Step 1 Step 3 Step 4 NPV ($) NPV x Joint 1st Invest Prob 2nd Invest Prob 3rd Invest Inflow Inflow Inflow Joint Prob (%) Prob ($) (2) 55 % -$10,269 (3) $4,761 $8,237 $20,065 $10,000 -$200 (3) $1,900 $2,345 $7,800 95% (2) 35% (1) -$60 (3) $0 $0 $0 (2) 5% Stop $0 $0 $0 $0 5% Stop Expected NPV Based on your calculations, you recommend that Free Spirit Industries Inc.