Question

Chrustuba Inc. is evaluating a new project that would cost $8.4 million at t = 0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $6.2 million during Years 1, 2, and 3. However, there is a 50% chance that it would be less successful and would generate only $1 million for each of the 3 years. If the project is highly successful, it would open the door for another investment of $12 million at the end of Year 2, and this new investment could be sold for $24 million at the end of Year 3. Assuming a WACC of 10.5%, what is the project's expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations. ? $5,123 ? $4,454 ? $3,786 ? $5,345 ? $3,564

          Chrustuba Inc. is evaluating a new project that would cost $8.4 million at t = 0. There is
a 50% chance that the project would be highly successful and generate annual after-tax
cash flows of $6.2 million during Years 1, 2, and 3. However, there is a 50% chance that
it would be less successful and would generate only $1 million for each of the 3 years.
If the project is highly successful, it would open the door for another investment of $12
million at the end of Year 2, and this new investment could be sold for $24 million at
the end of Year 3. Assuming a WACC of 10.5%, what is the project's expected NPV (in
thousands) after taking into account this growth option? Do not round intermediate
calculations.
? $5,123
? $4,454
? $3,786
? $5,345
? $3,564

Chrustuba Inc. is evaluating a new project that would cost 8.4 million at t = 0. There is
a 50% chance that the project would be highly successful and generate annual after-tax
cash flows of6.2 million during Years 1, 2, and 3. However, there is a 50% chance that
it would be less successful and would generate only 1 million for each of the 3 years.
If the project is highly successful, it would open the door for another investment of12
million at the end of Year 2, and this new investment could be sold for 24 million at
the end of Year 3. Assuming a WACC of 10.5%, what is the project's expected NPV (in
thousands) after taking into account this growth option? Do not round intermediate
calculations.
?5,123
? 4,454
?3,786
? 5,345
?3,564

Added by Stephanie R.

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