Question: You are considering producing a new product, which if it is successful will produce cash flows of $38,000 per year in perpetuity. If it is

You are considering producing a new product, which if it is successful will produce cash flows of $38,000 per year in perpetuity. If it is unsuccessful, the cash flow will be -$6,000 in the first year and then you will shut down. If the probability of success is 0.25 and the opportunity cost of capital is 13 percent, what is the maximum that you would be willing to pay to undertake the investment?

b) Given that the maximum you would be willing to pay is $69,094.62, should the decision be to market or not if the cost of the investment is 95,000?

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