Question: Go Power Batteries has developed a high voltage nickel metal hydride battery that
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 $10 million. Alternatively, Go-Power Batteries can invest $50 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 $40 million, such that the plant has a negative expected NPV of –$10 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?
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