CHAPTER $7)$

A company is considering a $4-$year project. The required return is $12\%$ per year. Here are a few possible scenarios:

Scenario #$1$: $$ The project is profitable.

Scenario #$2$: $$ There is a $20\%$ chance that the annual cash flows are much lower than currently estimated! What the company can do in this case:

Original plan: Despite the lower cash flows, keep the project running for its original duration $($i$.$e$.,$ for $4$ years$).$

OR:

Revised plan: Shut down the project sooner, at the end of Year $1.$

Cash flows for each of the above scenarios:

Scenario #$1$ Scenario #$2$ Scenario #$2,$ revised

Year $0$ $ $-2,000$ $ $-2,000$ $ $-2,000$

Year $1$ $ $700$ $ $100$ $ $1,400$

Year $2$ $ $700$ $ $100---$

Year $3$ $ $700$ $ $100---$

Year $4$ $ $1,900$ $ $1,300---$

N$.$P$.$V$.=$ $

$

$

For all calculations in this problem: Round your answer to WHOLE dollar, and don't type the $"$$$"$ sign. If the value is negative, put the MINUS sign.

$(1)$ In the last row of the table above, calculate the Net Present Values for all scenarios.

$(2)$ The Expected Net Present Value of the project WITHOUT the possibility of shutting it down sooner if the cash flows turn out lower, equals $

$.$

$(3)$ The Expected Net Present Value of the project WITH the possibility of shutting it down sooner if the cash flows turn out lower, equals $

$.$ In this case, the dollar value of this option to shut down sooner equals $

$.$