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2. Decision-Making under Uncertainty. Consider an innovation that is expected to generate $100,000 in prots at the end of each of the next 4 years,
2. Decision-Making under Uncertainty. Consider an innovation that is expected to generate $100,000 in prots at the end of each of the next 4 years, and after that market competition is expected to drive the prots from the innovation to zero. (a) If the interest rate (or discount rate) is 10%, how much should the rm be willing and able to pay to research and develop the itmovation? (b) No suppose that the payoff is uncertain. The interest rate is the same, but now there is a 40% chance that the innovation generates $60,000 in prots and there is a 60% chance that it generates $140,000 in prots each of the next 4 years. How much should the rm be willing and able to pay to develop the innovation now
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