Please answer parts 1-3 please

Chapter 13 Real Options and Other Topics in Capital Budgeting 463 FIGURE 13.4 Analysis of a Flexibility Option (dollars in thousands) B c E Part 1. Project Without the Flexibility Option Prob 0 4 Outcome s strong demand 6 Weak demand 50% G H Cash Flow at End of Period 1 2 3 $2,500 $2,500 $2,500 $1,500 $1,500 $1,500 Expected NPV NPV@ 12% $1.005 -$1,397 -$5,000 -$5,000 50% 7 -5196 Part Ii. Project with the Flexibility Option Prob. O 50% 50% Switch products -$5,100 -$5,100 10 Chemie 11 Strong and 12 Weak 13 14 15 Part III. Value of the Option 16 Cash Flow at End of Period 2 3 $2,500 $2.500 $2.500 $1,500 $2.250 $2,250 Expected NPV NPV 12% $905 -$366 $270 $270 17 Expected NPV with the flexibility option Expected NPV without the flexibility option -$196 18 NA CASE 1: If the expected NPV without the flexibility option is positive, then 19 Value of the Expected NPV with Expected NPV Option = the flexibility option without the flexibility 20 option 21 CASE 2: If the expected NPV without the flexibility option is negative, then 22 Value of the Expected NPV with 0 23 Option = the flexibility option 24 Note: If a negative NPV project does not have a flexibility option, then it would not be undertaken. 25 in these cases, the expected NPV without the flexibility option is zero. 26 VALUE OF OPTION 27 $270 $270 SelfTest What are input flexibility options and output flexibility options? How do flexibility options affect projects' NPVs and risk