Nebraska Instruments (NI) is considering a project that has an up-front after tax cost at t = 0 of $1,000,000. The projects subsequent cash flows critically depend on whether its products become the industry standard. There is a 80 percent chance that the products will become the industry standard, in which case the projects expected after- tax cash flows will be $900,000 at the end of each of the next two years (t = 1,2). There is a 20 percent chance that the products will not become the industry standard, in which case the after-tax expected cash flows from the project will be $200,000 at the end of each of the next two years (t = 1,2). NI does not have delay option, but after two years it can expand the project one more time if it wishes to do. After two years, the expanded projects up-front cost at t = 2 will remain at $1,000,000 (certain cash flow). If it chooses to expand the project, the estimated subsequent after-tax cash flows will remain $900,000 at the end of the next two years (t=3, 4) if the product becomes the industry standard, and $200,000 at the end of the next two years (t=3, 4) if the product does not become the industry standard. Assume that all risky cash flows are discounted at 10 percent and risk-free rate is 6 percent.

1) What is the expected NPV of the project without considering growth (expansion) option?

2) What is the expected NPV of the project with considering growth (expansion) option?