Tony and Franzi, after graduating from the DMBA program, decide to launch a venture "Likable Lunches." To do this, Franzi would need to invest $1,000 at t=0 for the ingredients and menu development for these lunches. The assumption is that there is a 70% chance that this phase will be successful and will continue. If this stage is not successful, the lunch project would be scrapped with no left overs. The second stage would consist of designing packaging and delivery of these lunches. This is estimated to cost $25,000 at t =1. If the lunch design and delivery test well, Franzi and Tony would then go into production. If they do not, the designs could be sold for $5,000. Success for the second stage is estimated at 85%. The third and final stage consists of purchasing an old Delmonte plant for lunch production. This would cost $200,000 at t =2. If the lunch economy is strong, the net value of sales would be $600,000; if the lunch economy is in recession, the net value would be $300,000. There's a 50-50 chance of strong or weak lunch economy. Franzi's and Tony's Cost of Capital is 10%.

What is Franzi's and Tony's expected NPV?

Answer rating: 100% (QA)

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