# XYZ is considering to develop metaverse platforms. The initial investment into the tools and foundation blocks of metaverse is going

This problem has been solved!

Do you need an answer to a question different from the above? Ask your question!

## Question:

XYZ is considering to develop metaverse platforms. The initial investment into the tools and foundation blocks of metaverse is going to cost the company USD 95 million. Following are 2 situations on the predicted investment returns:

- Best case scenario, XYZ expects to earn USD 250 million in ten years (10% chance), USD 60 million for medium case (40% chance) and earn nothing (50% chance) if the market does not take off.
- XYZ decides to make an initial investment and based on how the markets reacts to the investment, they would decide if they wish to proceed. Creating the test metaverse platform is going to cost XYZ seed investment of USD 10 million. There is a 50% chance after the seed investment that the project takes off and 50% chance of project being shelved. Best-case scenario, XYZ expects to earn USD 250 million in ten years (40% chance), USD 60 million for medium case (50% chance) and earn nothing (10% chance) if the market does not take off.

Calculate the expected commercial value using both net present value approach and real options approach. Then provide your justification if the company should proceed or shelf the investment idea.

**Related Book For**

## Foundations of Financial Management

ISBN: 978-1259024979

10th Canadian edition

Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta

**View Solution**

Create a free account to access the answer

**Cannot find your solution?**

Post a FREE question now and get an answer within minutes.
* Average response time.