Herman Co. is considering a four-year project that will require an initial investment of $15,000. The base-case cash flows for this project are projected to be $14,000 per year. The best-case cash flows are projected to be $26,000 per year, and the worst-case cash flows are projected to be $4,500 per year. The companys analysts have estimated that there is a 50% probability that the project will generate the base-case cash flows. The analysts also think that there is a 25% probability of the project generating the best-case cash flows and a 25% probability of the project generating the worst-case cash flows. What would be the expected net present value (NPV) of this project if the projects cost of capital is 11%? $23,393 $19,884 $21,054 $24,563 Herman now wants to take into account its ability to abandon the project at the end of year 2 if the project ends up generating the worst-case scenario cash flows. If it decides to abandon the project at the end of year 2, the company will receive a one-time net cash inflow of $3,000 (at the end of year 2). The $3,000 the company receives at the end of year 2 is the difference between the cash the company receives from selling off the projects assets and the companys $4,500 cash outflow from operations. Additionally, if it abandons the project, the company will have no cash flows in years 3 and 4 of the project. Using the information in the preceding problem, find the expected NPV of this project when taking the abandonment option into account. $25,154 $27,802 $26,478 $30,450 What is the value of the option to abandon the project?

Herman Co. is considering a four-year project that will require an initial in itment of $15,000. The basecese cash nows for this project are projected to be $14,000 per year. The best-case cash nows are projected to be $26,000,1 y wr, and the worst-case cash nows are projected to be - $4,500 per year. The company's analyats have estimated that there is a 50% probabinty that the pr cot wal generate the baie-case cash fows. The analysts ake think that there is a 25% probabaly or the project generating the best-case cash frows and a 25 chy probazility of the project genetating the worst-case cash flows: What would be the expected net present value (NPV) of this projed if the project's cost of capital is i1?n? $23,393$19,684321,054$24,563 in years 3 and 4 of the project. 125+54 127602 126,471 530,190