Suppose that research and development is $$4$ million initially and $$3$ million more for each of

the next four years. And suppose that at the end of the firth year the firm has an option to either

go ahead with the product or simply abandon it$.$ If the firm goes ahead with the development of

the product, this will require an investment of $$150$ million at the end of the fifth year. Assume

that we can sell the investment in the product to another party, that is$,$ cash out, at the end of the

fifth year for $$145$ million. And, because we know that all of this is uncertain, let us attach

probabilities of this being a marketable product and, hence, one that the firm is able to cash out.

Assume that there is a $55\%$ chance that the firm can cash out for $$145$ million and a $45\%$

chance that the firm cannot cash out at all.