GHY plc is evaluating two mutually exclusive projects, A and B. Project A is riskier than the average level of risk of the company, while Project B is of lower risk than average level of risk of the company. The cash flows of the projects are as follows: Project A (in 000) Year 1 Year 2 Year 0 Initial outlay Probability Cash Flow Probability Cash Flow 260 40% 220 210 -350 70% 30% 60% 40% 200 60% 180 160 Year 0 Initial outlay Probability Project B (in 000) Year 1 Cash Flow Probability 40% 260 60% 45% 150 55% Year 2 Cash Flow 310 35% -350 260 180 140 65% The company's overall cost of capital is 7% and the risk-adjusted rate for evaluating riskier/lower risk projects is +1% respectively. 1. Evaluate the projects using the NPV criterion. 2. Assume that the company has the option to liquidate the investment undertaken under Question 1 above, for 200,000, at the end of the first year. Recalculate the NPV of the project bearing in mind this option. Does the option increase the NPV value or not? Why