Chrustuba Inc

question 6

Multiple Choice

Chrustuba Inc.is evaluating a new project that would cost $8.6 million at t = 0.There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $5.6 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 $11 million at the end of Year 2,and this new investment could be sold for $22 million at the end of Year 3.Assuming a WACC of 9.5%,what is the project's expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations.
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• A) 0$3,123
• B) 0$3,471
• C) 0$4,165
• D) 0$2,603
• E) 0$2,950

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