Question: Chrustuba Inc. is evaluating a new project with an after - tax cost of $ 8 . 6 million at t = 0 . There

Chrustuba Inc. is evaluating a new project with an after-tax cost of $8.6 million at t =0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $5.0 million during Years 1,2, and 3. However, there is a 50% chance that it would be less successful and would generate annual after-tax cash flows of only $1 million for each of the 3 years. If the project is highly successful, it would open the door for another after-tax investment of $12 million at the end of Year 2, and this new investment could be sold for $24 million after taxes at the end of Year 3. Assuming a WACC of 11.5%, what is the project's expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations.
a. $3,385
b. $4,997
c. $2,498
d. $3,775
e. $4,141

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