Howard Co. is thinking about launching a 3-year project that will require an initial investment of $44,000. If market demand is strong, Howard Co. thinks that the project will generate cash flows of $28,000 per year. However, if market demand is weak, the company believes that the project will generate cash flows of only $1,750 per year. Howard Co. thinks that there is a 50% chance that demand will be strong and a 50% chance that demand will be weak.
If the company uses a project cost of capital of 10%, what will be the expected net present value (NPV) of this project if the company is ignoring the timing option?
A. -$5,957
B. -$7,008
C. $5,606
D. $6,307