Oregon Ducks, Inc. is considering buying licenses for 12 megahertz of wireless spectrum in the 700 MHz range, which is suitable for delivering television to mobile phones. The 700 MHz signals can travel long distances and more easily penetrate walls and other obstacles. The acquisition cost is $300 million. In addition, because networks that operate in the 700 MHz range are less expensive to build than those in other portions of the spectrum, Ducks estimates annual costs of $24 million over the next 9 years and no salvage value. During the same period, the company expects to generate annual revenue of $40 million by offering television and video to mobile-phone users. Calculate the net present worth of this investment if the company's minimum attractive rate of return (discount rate) is 13% per year.

Oregon Ducks, Inc. is considering buying licenses for 12 megahertz of wireless spectrum in the 700 MHz range, which is suitable for delivering television to mobile phones. The 700 MHz signals can travel long distances and more easily penetrate walls and other obstacles. The acquisition cost is $300 million. In addition, because networks that operate in the 700 MHz range are less expensive to build than those in other portions of the spectrum, Ducks estimates annual costs of $24 million over the next 9 years and no salvage value. During the same period, the company expects to generate annual revenue of $40 million by offering television and video to mobile-phone users. Calculate the net present worth of this investment if the company's minimum attractive rate of return (discount rate) is 13% per year.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter3: Demand Analysis

Section: Chapter Questions

Problem 2.2CE

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