Question: Please show all the steps, including a tree diagram if posssible. Reality Vision is a newly formed company that must overcome three production obstacles to
Please show all the steps, including a tree diagram if posssible.
Reality Vision is a newly formed company that must overcome three production obstacles to produce their virtual reality glasses to market: 1) make a cool frame; 2) make a holographic-ish lens 3) design a computer chip to run them. They must work on the project sequentially because their budget is constrained. Management expects the frame development to cost $3 million, take 2 years to develop and have a 90% probability of success. Lenses will cost $20 million, take 7 years to develop and will have a 30% probability of success. The computer chip will cost $2 million and 2 years to develop and have a probability of success of 80%. If Reality Vision is successful, they expect $25 million/year in cash flow starting 11 years from today and they expect CFs to grow by 1%/year forever. Your job is to determine the optimal sequence and the project NPV. The discount rate is 10%
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
