Use this information for the following 5 questions. Important: Read all of the questions pertaining to this problem before starting any calculations! You don't want to waste time doing calculations you don't need! HCB, Inc. is considering expanding its educational offerings into a welding certificate with welding instructional facilities in Knoxville. The initial cost is $500,000 and if there is sufficient interest. (probability 70% ), the cash flows will be $2 million per year for 3 years. If there isn't much interest (probability 30\%), cash flows will be $100,000 per year for 3 years. After 3 years, HCB can expand its operations to Nashville with a higher initial cost of $700,000 (because prices are higher in Nashville) to be paid in Year 3 and will receive the same cash flows it received in Knoxville but starting in Year 4 . That is, if the cash flows were $2 million a year in Knoxville, they would also be $2 million a year in Nashville. If they were $100,000 a year in Knoxville, they would also be $100,000 a year in Nashville. HCB will only expand into Nashville at Year 3 if it is profitable to do so. HCB's cost of capital is 10% and the risk-free rate is 6%. The $500,000 and $700,000 required investment costs are contractual amounts so they are risk-free. 10. Which one of the following statements is true? a. The project consists of an initial project plus a growth option. b. The project consists of an initial investment timing option plus a followon project. c. The project is an investment timing option. d. The project consists of an initial investment plus an abandonment option. e. The project consists of an investment timing option plus a followon investment timing option. 11. Which one of the following statements is true? a. The time to expiration of the option component of the project is 3 years and the exercise price is $700,000. b. The time to expiration of the option component of the project is 1 year and the exercise price is $700,000 c. The time to expiration of the option component of the project is 3 years and the exercise price is $500,000 d. The time to expiration of the option component of the project is 1 year and the exercise price is $500,000 e. There is no option component to this project