(Real options and capital budgeting) Go-Power Batteries has developed a high-voltage nickel-metal hydride battery that can be used to power a hybrid automobile and it can sell the technology immediately to Toyota for $11.9 million. Alternatively, Go-Power Batteries can invest $51.6 million in a plant and produce the batteries for itself and sell them. Unfortunately, the present value of the cash flows from such a plant would only be $39.2 million, such that the plant has a negative expected NPV of - $12.4 million. The problem, Go-Power executives recognize, is the small size of the market for a hybrid car today. Under what assumptions might Go-Power Batteries decide not to sell the technology to Toyota and delay investment in the new plant? (Select all that apply.) O A. As long as Go-Power Batteries had patent protection none of its competitors will develop a superior technology that makes the hydride battery obsolete. O B. Even if Go-Power Batteries had patent protection a competitor may develop a superior technology that makes the hydride battery obsolete. O c. The option to delay must rest on patent protection which would give Go-Power Batteries the right to develop the new technology over the life of the patent. O D. The option to delay must rest on the fact that no other company would undertake a project with a negative NPV.
(Real options and capital budgeting) Go-Power Batteries has developed a high-voltage nickel-metal hydride battery that can be used to power a hybrid automobile and it can sell the technology immediately to Toyota for $11.9 million. Alternatively, Go-Power Batteries can invest $51.6 million in a plant and produce the batteries for itself and sell them. Unfortunately, the present value of the cash flows from such a plant would only be $39.2 million, such that the plant has a negative expected NPV of - $12.4 million. The problem, Go-Power executives recognize, is the small size of the market for a hybrid car today. Under what assumptions might Go-Power Batteries decide not to sell the technology to Toyota and delay investment in the new plant? (Select all that apply.) O A. As long as Go-Power Batteries had patent protection none of its competitors will develop a superior technology that makes the hydride battery obsolete. O B. Even if Go-Power Batteries had patent protection a competitor may develop a superior technology that makes the hydride battery obsolete. O c. The option to delay must rest on patent protection which would give Go-Power Batteries the right to develop the new technology over the life of the patent. O D. The option to delay must rest on the fact that no other company would undertake a project with a negative NPV.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:(Real options and capital budgeting) Go-Power Batteries has developed a high-voltage nickel-metal
hydride battery that can be used to power a hybrid automobile and it can sell the technology immediately to
Toyota for $11.9 million. Alternatively, Go-Power Batteries can invest $51.6 million in a plant and produce
the batteries for itself and sell them. Unfortunately, the present value of the cash flows from such a plant
would only be $39.2 million, such that the plant has a negative expected NPV of - $12.4 million. The
problem, Go-Power executives recognize, is the small size of the market for a hybrid car today. Under
what assumptions might Go-Power Batteries decide not to sell the technology to Toyota and delay
investment in the new plant?
(Select all that apply.)
| A. As long as Go-Power Batteries had patent protection none of its competitors will develop a
superior technology that makes the hydride battery obsolete.
B. Even if Go-Power Batteries had patent protection a competitor may develop a superior technology
that makes the hydride battery obsolete.
OC. The option to delay must rest on patent protection which would give Go-Power Batteries the right
to develop the new
technology over the life of the patent.
O D. The option to delay must rest on the fact that no other company would undertake a project with a
negative NPV.
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