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Question: Fethe's Funny Hats is considering selling trademarked, orange-haired curly wigs for University of Tennessee football games. The purchase cost for a 2-year franchise to sell the wigs is $20,000. If demand is good (40% probability), then the net cash flows will be $27,000 per year for 2 years. If demand is bad (60% probability), then the net cash flows will be $9,000 per year for 2 years. Fethe's cost of capital is 14%.

A. What is the expected NPV of the project?

B. Use decision-tree analysis to calculate the expected NPV of this project, including the option to continue for an additional 2 years.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92811948

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