Suppose Messick & Co. is thinking of developing a new self-cleaning paint sprayer, but are not sure what the demand for this product is. They estimate that it will cost $1 million to develop the product and that FCF will be $200 thousand annually in perpetuity begining one year from now. We will assume that the project's beta = 0 and therefore the cost of capital is the risk-free tax rate of 5%.

Suppose that in one year Messick & Co. will learn about the demand for its new paint sprayer. If the project is successful Messick & Co. will invest an additional $3 million and FCF which will generate an additional FCF of $200 thousand annually in perpetuity beginning two years from now. If the project is not successful Messick & Co. will continue to produce at the same size. Assuming the risk-neutral probability of success is 0.50, How valuable is the option to "scale up"? Submit your answer in thousands.