A firm relies on R&D to maintain profitability. The firm needs to determine the maximum amount to

Question:

A firm relies on R&D to maintain profitability. The firm needs to determine the maximum amount to invest today (or invest in phase I) for its three-phased project.
€¢ Phase I: Research. (Invest R{) today.)
€¢ Phase II: Development. (Invest I one year from now.)
€¢ Phase III: Implementation. (Invest h in facilities, manpower, etc., three years from today.)
The three-phased investment cash flows are as given in Figure PI3.23.
Using a of 12%, a = 50%, and r = 6%, determine the best investment strategy for the firm.
Figure PI3.23

MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...