What is the project expected npv

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Crip Inc. is considering a project which would require an $8.5 million investment today (t = 0). The after-tax cash flows the factory generates will depend on whether the state imposes a new property tax. There is a 40% probability that the tax will pass. If the tax passes, the factory will produce after-tax cash flows of $0.7 million at the end of each of the next 5 years. There is a 60% probability that the tax will not pass. If the tax does not pass, the factory will produce after-tax cash flows of $2.85 million for the next 5 years. The project has a WACC of 9%. If the factory is unsuccessful, the firm will have the option to abandon the project 1 year from now if the tax passes. If the factory project is abandoned,the firm will receive the expected $0.7 million cash flow at t = 1, and the property will be sold netting $8.15 million (after taxes are considered) at t = 1. Once the project is abandoned, the company would no longer receive any cash inflows from it. What is the project's expected NPV if it can be abandoned?

a. $1,088,775.25

b. $1,399,010.08

c. $1,875,544.33

d. $2,100,000.00

e. $2,585,506.10

Reference no: EM132056991

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