Hi can anybody help me regarding finance question. I am really in need??You are working in the finance department of Space Sky Flight Ltd (SSF). The Company has spent $6.5
million in research and development over the past 12 months developing a drone capable to fix satellites
to compete in the space industry. SSF's directors now need to choose between three options for bringing
this product to the market. These options are:
Option A: Manufacturing the product "in-house" and selling directly to the market
Option B: Licensing another company to manufacture and sell the product in return for a royalty
Option C: Sell the patent rights outright to the company mentioned in option B
Your boss, SSF's CFO Savanah Harley, has asked you to evaluate the three different options and draft a
memo to the Board of Directors providing recommendations on the alternatives, along with supporting
Savanah has outlined the following three areas you need to cover in your memo:
1. Analyse base case figures for the three options and using NPV as the investment decision rule;
2. Provide recommendations based on the base-case analyses;
3. Provide recommendations on further analyses and factors that should be considered prior to making a
final decision on the three options (Note. You do NOT have to undertake any further financial analyses).
Further details for the various options are as follows:
Two months ago, SSF paid an external consultant $950,000 for a production plan and demand analysis.
The consultant recommended producing and selling the product for five years only as technological
innovation will likely render the market too competitive to be profitable enough after that time. Sales of
the product are estimated as follows:
In the first year, it is estimated that the product will be sold for $110,000 per unit. However, the price will
drop in the following three years to $70,000 per unit and fall again to $50,000 per unit in the final year of
the project, reflecting the effects of anticipated competition and improving technology in the market.
Variable production costs are estimated to be $35,000 per unit for the entire life of the project.
Year Estimated sales
volume (000's of units)