Decision tree that has a three year period

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Reference no: EM131055448

PLEASE HELP: Multiple choice.. Exhibit 26.1(attached) is a decision tree that has a three year period.

At time zero, you have a 100% chance of investing $400. In year one, you have a 20% chance of abandoning the project, or an 80% chance to invest another $1,000. At year two, you have a 60% chance of investing another $10,000, or a 40% chance of abandoning the project. At year three, you have a 50% chance of getting a reward of $25,000, or a 50% chance of getting a reward of $10,000.

Based on this and the attached file, please respond to the following by choosing the best answer and in a sentence explain why.
Refer to Exhibit 26.1 (attached file). Since the project is considered to be quite risky, a 20% cost of capital is used. What is the project's expected NPV, in thousands of dollars?
a. $336.15
b. $373.50
c. $415.00
d. $461.11
e. $507.22

Reference no: EM131055448

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