9. Chrustuba Inc. is evaluating a new project that would cost $8.0 million at t= 0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $5.4 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 $10 million at the end of Year 2, and this new investment could be sold for $20 million at the end of Year 3. Assuming a WACC of 8.5%, what is the project's expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations. a. $3,942 b. $4,318 c. $4,506 d. $3,755 e $3.379
9. Chrustuba Inc. is evaluating a new project that would cost $8.0 million at t= 0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $5.4 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 $10 million at the end of Year 2, and this new investment could be sold for $20 million at the end of Year 3. Assuming a WACC of 8.5%, what is the project's expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations. a. $3,942 b. $4,318 c. $4,506 d. $3,755 e $3.379
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter14: Real Options
Section: Chapter Questions
Problem 3MC: Tropical Sweets is considering a project that will cost $70 million and will generate expected cash...
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![9. Chrustuba Inc. is evaluating a new project that would cost $8.0 million at t=0. There is a 50% chance that the project
would be highly successful and generate annual after-tax cash flows of $5.4 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 $10 million at the end of Year 2, and this
new investment could be sold for $20 million at the end of Year 3. Assuming a WACC of 8.5%, what is the project's
expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations.
a. $3,942
b. $4,318
c. $4,506
d. $3,755
e. $3,379](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6a0c26ef-2abf-4cdb-926d-569bd5e6e5a1%2Fe2a9ea05-340f-48d4-8966-d356f5abcb9b%2Fcv8rjh_processed.png&w=3840&q=75)
Transcribed Image Text:9. Chrustuba Inc. is evaluating a new project that would cost $8.0 million at t=0. There is a 50% chance that the project
would be highly successful and generate annual after-tax cash flows of $5.4 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 $10 million at the end of Year 2, and this
new investment could be sold for $20 million at the end of Year 3. Assuming a WACC of 8.5%, what is the project's
expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations.
a. $3,942
b. $4,318
c. $4,506
d. $3,755
e. $3,379
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