# Herman Co. is considering a four-year project that will requ…

Herman Co. is considering a four-year project that will require an initial investment of \$7,000. The base-case cash flows for this project are projected to be \$12,000 per year. The best-case cash flows are projected to be \$19,000 per year, and the worst-case cash flows are projected to be -\$3,000 per year. The company's analysts have estimated that there is a 50% probability that the project will generate the base-case cash flows. The analysts also think that there is a 25% probability of the project generating the best-case cash flows and a 25% probability of the project generating the worst-case cash flows. what would be the expected net present value (NPV) of this project if the project's cost of capital is 11%? O \$21,622 O \$24,024 O \$27,628 O \$22,823 Herman now wants to take into account its ability to abandon the project at the end of year 2 if the project ends up generating the worst-case scenario cash flows. If it decides to abandon the project at the end of year 2, the company will receive a one-time net cash inflow of \$4,500 (at the end of year 2). The \$4,500 the company receives at the end of year 2 is the difference between the cash the company receives from selling off the project's assets and the company's-\$3,000 cash outflow from operations. Additionally, if it abandons the project, the company will have no cash flows in years 3 and 4 of the project. Using the information in the preceding problem, find the expected NPV of this project when taking the abandonment option into account. O \$30,577 O \$26,589 O \$27,918 O \$29,248 What is the value of the option to abandon the project?
Herman Co. is considering a four-year project that will requ…