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Acme Robot Company wishes to consider a potential investment opportunity for the use of robots in television assembly lines: Stage 1...At t=0, conduct a $500,000

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Acme Robot Company wishes to consider a potential investment opportunity for the use of robots in television assembly lines: Stage 1...At t=0, conduct a $500,000 study of the market potential for robot use in television assembly lines Stage 2...If it appears that a sizable market for TV assembly robots exist, then at tl spend $1 million to design and fabricate several prototype robots. Stage 3...If reaction to the prototype robots is good, at t=2 build a production plant at a net cost of $10 million. If this stage were reached, managers estimate that the project would generate net cash flows over the next four years which depend on how well the project was received by TV manufacturers. Probability of outcome: 1) 80% probability that market study produces favorable results 2) Project will be stopped if unfavorable results are received 3) 60% probability that TV engineers will find prototype useful 1) 30% chance of $10 million per year for 4 years 2) 40% chance of $4 million per year for 4 years 3) 30% chance of negative $2 million per year for 4 years The Cost of Capital = 10% - should they undertake the market study

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