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
