Barnes' Binoculars is considering licensing the technology to manufacture a new bifocal binocular. If Barnes decides to undertake the project, they will spend $1 million immediately to license the technology and build a prototype. If the prototype works as expected (60% probability), they will spend $5 million in Year 1 to build a manufacturing facility. This will take a year to complete. If the prototype doesn't work out (40% probability), they will abandon the project, sell the license, and receive $100,000 in Year 1 for the license. Once the manufacturing facility is built, then cash flows will be $8 million per year for 10 years starting in Year 2 if there is good market acceptance (70% probability). Cash flows will be $2 million per year for 10 years if there is poor market acceptance (30% probability). The WACC is 10%. Calculate the ENPV of the project. $14.12
Barnes' Binoculars is considering licensing the technology to manufacture a new bifocal binocular. If Barnes decides to undertake the project, they will spend $1 million immediately to license the technology and build a prototype. If the prototype works as expected (60% probability), they will spend $5 million in Year 1 to build a manufacturing facility. This will take a year to complete. If the prototype doesn't work out (40% probability), they will abandon the project, sell the license, and receive $100,000 in Year 1 for the license. Once the manufacturing facility is built, then cash flows will be $8 million per year for 10 years starting in Year 2 if there is good market acceptance (70% probability). Cash flows will be $2 million per year for 10 years if there is poor market acceptance (30% probability). The WACC is 10%. Calculate the ENPV of the project.
- $14.12
- $15.54
- $17.09 correct answer
- $18.80
- $20.68
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