please solve （d) and (e), thank you. 1280% +$400,000-$50,0000+$040%50%+$400,000-$20,0000-$100,0000+$060%dispose+$10,0000abandon +$0e) Why do you think decision trees are a useful tool for makinginvestment decisions? (max 200 words) GenZ has come up with a new product prototype and is ready togo ahead with pilot production and test marketing. The pilot pro-duction and test marketing phase will last for one year and cost$500,000. Your management team believes that there is a 50%chance that the test marketing will be successful and that there willbe sufficient demand for the new product. If the test-marketingphase is successful, then GenZ will invest $3 million in year one tobuild a plant that will generate expected annual after tax cash flowsof $400,000 in perpetuity beginning in year two. If the test mar-keting is not successful, Genz can still go ahead and build the newplant, but the expected annual after tax cash flows would be only$200,000 in perpetuity beginning in year two. GenZ has the optionto stop the project at any time and sell the prototype product to anoverseas competitor for $300,000. GenZ's cost of capital is 10%.a) Assuming that Genz has the ability to sell the prototypeone for $300,000, draw a decision tree detailing the project de-inyearscribed above.b) Assuming that Genz has the ability to sell the prototypeone for $300,000, what is the NPV of the Project ?inyearc) Assuming that Genz does not have the ability to sell the pro-totype in year one, what is the NPV of the Project ?d) Look at the decision tree below and use your knowledge of deci-sion trees to create your own story that explains what is depicted.You may invent the name of a company, and a product. De-scribe what is happening to this product in the various stages ofthe process displayed by the decision tree. There is no need towork out any NPV figures. (max 200 words)

Decision tree are very useful tool in making any decision in various areas. When any company or any…

Answered: 80% +$400,000 -$50,0000 +$0 40% 50%…

Business

Economics

80% +$400,000 -$50,0000 +$0 40% 50% +$400,000 -$20,0000 -$100,0000 +$0

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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