our company is interested in developing a new communication device.The project requires an initial investment cost of $300million and will last for 5years. The project's subsequent cash flows critically depend on whether the device becomes the industry standard. There is a 50% chance that this will occur, in which case the project's expected cash flows will be $150million at the end of each of the next 5years. There is also a 50% chance that the device will not become the industry standard, in which case the project's expected cash flows will be $35million at the end of each of the next 5years. The project's required rate of return is 15%. Assume that after receiving the first year's cash flows your company will know if the device has become the industry standard. If your company is able to abandon the project at that time, all the fixed assets related to the project can be sold to generate a further $130million in after-tax cash flows for the company. Assume that the abandon option does not affect the projects required rate of return.

(a)What is the projects expected net present value if there is no abandon option?

(b)What is the projects expected net present value if the company can abandon the project after one year?

(c)What is the estimated value of this abandon option?