The “Dubi Dubbel” investment of Problem 16.1 is one of five brewery investments that Grolsch is considering. The quality of the beer produced in Dubiety will determine the quality of beer that Grolsch can expect from the other four investments. Grolsch will not know the quality of beer or its price until production begins. The situation is similar to Problem 16.1.

Initial investment ; rises by 10% each year Price of beer in 1 year or D75 with equal probability Variable production cost per bottle Fixed production cost per year Expected production bottles per year forever Discount rate

a. Draw a decision tree that depicts Grolsch's investment decision.

b. Calculate the NPV of investing as if it were a now-or-never alternative.

c. Calculate the NPV of investing in an exploratory brewery and then reconsidering investment in the other breweries in one year after the price of beer is revealed by the initial investment.

d. Calculate the NPV of investing today, including all opportunity costs.

e. Should Grolsch invest today? What is different in this problem from the setting in Problem 16.1, and how does it affect Grolsch's decision?