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Cash flows in years 1 to 20 might be $65 million per year or $90 million per year, with a 50% probability of each outcome.
Cash flows in years 1 to 20 might be $65 million per year or $90 million per year, with a 50% probability of each outcome. Because of the nature of the purchase contract, Marcal can sell the company two years after purchase (at Year 2 in this case) for $450 million if it no longer wants to own it. Does decision-tree analysis indicate that it makes sense to purchase the electronics company? Again, assume that all cash flows are discounted at 15%. (NPV calculation required.)
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