If you decide to continue the project, you will have to spend an additional $2 million by the end of this year (Year 1). Then there will be a year of waiting (Year 2) before you know if the patent is granted. Assume that the patent will be awarded at the end of Year 2, and you will decide to sell the product directly. Then you will have to invest $5 million in each of Years 3 and 4 (to make up the total investment of $10 million). Your net proceeds from selling the product, then, would be evenly distributed over Years 5 through 9. Assuming an annual interest rate of 15%, which of the following is the PV of the payoff at the end of Year 9 of the High Demand branch of the decision tree?

$23M Patent Awarded p = 0.7 License Technology $25M Continue Development - $2M Demand High p = 0.25 $55M $43M Develop Production and Marketing to Sell Product Directly -$10M Demand Medium p = 0.55 $33M $21M No Patent p = 0.3 - $2M Demand Low p = 0.20 $15M $3M Stop Development $0