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Can someone help with the problem below?. The answer that I have received yesterday is not 100% clear Holmes has developed chocolate marbles. The product
Can someone help with the problem below?. The answer that I have received yesterday is not 100% clear
Holmes has developed chocolate marbles. The product will be test marketed in the southeastern United States for 2 years, requires an initial investment of $2 million, and because of heavy promotional expenses is not expected to generate any positive CFs during the first 2 years. There is a 60 percent chance that demand for the chocolate marbles will be satisfactory; if that is so, an $8 million after-tax cash investment will be incurred at t=2 to market the chocolate marbles in the eastern half of the United States. Subsequent CFs are as follows: If the test-market results are unfavorable (40 percent chance), then the chocolate marbles will be withdrawn from the market. Once consumer preferences are known, Holmes considers chocolate marbles an average-risk project requiring a 14 percent return. During the test-marketing phase a 25 percent return is required. What decision should Holmes make? Holmes has developed chocolate marbles. The product will be test marketed in the southeastern United States for 2 years, requires an initial investment of $2 million, and because of heavy promotional expenses is not expected to generate any positive CFs during the first 2 years. There is a 60 percent chance that demand for the chocolate marbles will be satisfactory; if that is so, an $8 million after-tax cash investment will be incurred at t=2 to market the chocolate marbles in the eastern half of the United States. Subsequent CFs are as follows: If the test-market results are unfavorable (40 percent chance), then the chocolate marbles will be withdrawn from the market. Once consumer preferences are known, Holmes considers chocolate marbles an average-risk project requiring a 14 percent return. During the test-marketing phase a 25 percent return is required. What decision should Holmes makeStep by Step Solution
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