Tropical Soft Drinks is evaluating a proposal to install solar panels on the roof of it's factory near San Juan. The panels will cost $175,000 per set. Depending on the price of electricity and the efficiency of the panels, the project will increase operating cash flows by either $50,000 per year or $75,000 per year. The useful life of the panels is 5 years. If early results indicate savings of $75,000 per year, four additional sets of panels will be installed immediately at the same cost with the same projected savings. The probability of either outcome is 50%. Use a discount rate of 10%.

What is the expected NPV of the project if the option to expand is considered?

a. $280,542

b. $355, 542

c. $546,545

d. $671,545

Brookfield Heavy Equipment is considering a project that will produce after tax cash of $40,000 per year for 5 years. The project will require an initial investment of $147,427.70. At what discount rate will the project reach break-even NPV?

a. 12%

b. 8%

c. 10%

d. 11.11%