Shan. Co is considering a foru year project that will require an initail investment of $7,000. The base case cash flows for this project are projected to be $12,000 per year. The best case cash flows are projected to be $20,000 per year, and the worst case cash flows are projected to be -$1,000 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% probabilitiy of the project generating the worst case cash flows.

What would be the expected net present value of this project if the project's cost of capital is 10%?

a. 28,430

b. 27,076

c. 32,491

d. 29,784

Shan 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 $4,500 (at end of eyar 2). The $4,500 the comapny receives at the end of year 2 is the difference between the cash the company recieves from selling off the project's assets and the comapny's -$1,000 cash outflow from operations. Additionally, if it abandons the project, the company will have no cash flwos in years 3 and 4 of the project.

Using the informaiton in the preceding problem, find the expected NPV of this project when taking the abandoment option into account.

a. 34,285

b. 28,571

c. 31,428

d. 27,142

What is the value of the option to abandon the project?

a. 1,570

b. 1,645

c. 1,196

d. 972

e. 1,495