We are examining a new project. The annual operating cash flow is projected to be $640,000 for the next 3 years. The discount rate is 16 percent, and the initial investment required is $1,500,000. Assume that success and failure are equally likely, and we could expand the project one year later only if the project is a success. If we expand, the operating cash flows will be doubled in the next 2 years. What is the value of the option to expand? 2 5
A. $1,027,348
B. $442,82
C. $885,64
D. $513,674
E. $551,724