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martin development company is deciding whether to proceed with Project X. The cost would be...

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Finance

martin development company is deciding whether to proceed with Project X. The cost would be $9 million in year 0, there is a 50% chance that X would be hugely successful and would generate a cash after tax flow of $6 million per year during years 1, 2 and three. however there is a 50% chance that X would be less successful and would generate only $1 million per year for the three years. If Project X is hugely successful it would open the door to another investment project why which would require an outlay of 10 million dollars at the end of year 2. project Y would then be sold to another company at a price of $20 million at the end of year 3 Martins weighted average cost of capital is 11%.

A)if the company does not consider real options what is Project X expected NPV?

b) What is X is expected NPV with the growth option?

c)what is the value of the growth option?

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