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A corporation is trying to decide whether or not to buy the patent for a product designed by another company.

A corporation is trying to decide whether or not to buy the patent for a product designed by another company. The decision to buy means an initial investment of $8 million and the demand for the product is not known. If demand is light, the company expects a return of $1.3 million each year for 3 years (assume no cost/revenue afterward). If the demand is moderate the return will be $2.5 million each year for 4 years and a high demand means a return of $4 million each year for 4 years (all figures represent after-tax values). It is estimated the probability of a high demand is 0.4 and the probability of a light demand is 0.2. The firms interest rate (risk-free) is 12%. Calculate the expected net present value.

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1 comment
  • It is in table form with five columns......please with the spacing...........goodluck......
    • ombatied
    • May 01, 2018 at 6:24am

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