solution

ABC Company is conducting a project with an up-front cost at t = 0 of $1,100,000. The project’s subsequent cash flows depends on whether a competitor’s product is approved by FDA. There is a 60% chance that the competitive product will be rejected, in which case the company’s expected cash flows will be $504,405 at the end of each of the next four years (t = 1 to 4). There is a 40% chance that the competitor’s product will be approved, in which case the expected cash flows will be only $156,446 in t = 1 to 4. The company will know for sure one year from today whether the competitor’s product has been approved. If the company waits a year, the project’s up-front cost at t = 1 will remain at $1,100,000. The subsequent cash flows will also remain the same with the same probabilities as no waiting, but will be received only for three years (t = 2 to 4). All cash flows are discounted at the company’s WACC of 10%. What will the NPV at t=0 for each of the two strategies be? Round your answer to the nearest dollar, e.g., XXX,XXX. (Hint: Refer to the Evaluation of Investment Timing Option example in Real Options.) NPV at t=0 if the company proceeds today = $ NPV at t=0 if the company waits a year = $

 
"Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!"

Save your time - order a paper!

Get your paper written from scratch within the tight deadline. Our service is a reliable solution to all your troubles. Place an order on any task and we will take care of it. You won’t have to worry about the quality and deadlines

Order Paper Now