In recent discussions with engineers from Integrated Corporation, MDD product designers learned about a recent patent that a small electronic gaming company, BrainHack, filed related to a direct-implant virtual reality system. They have come to you to determine how much to offer BrainHack for the exclusive rights to use the patent to develop new microprocessor chips. The MDD design engineers, and your research, have revealed the following: Any new products developed would require new wafer fabrication equipment with an estimated purchase price of $650 thousand. Installation and start-up activity, including training, would cost another $200 thousand and require 18 months from order placement. The economic life of the new direct-implant chips for MDD (before it would transfer the production to its technology partners) is expected to be five years. Net after-tax cash flows from selling such chips are estimated to be $360 thousand each year. Leading-edge microprocessor development investments have returns with a standard deviation of 75%. This project is "out there" so you believe a risk adjustment of 2 percentage points is appropriate. Long-term government bonds have a current interest rate of 2.5%. Thirty months of steady development activity would be enough to determine the technology's viability. The current design group has adequate capacity to perform this work with no new hires. MDD's design engineers earn, on average, $85 thousand in salary and benefits. What is your recommendation for MDD's reservation price (the maximum it would pay for the patent rights) for its negotiations with BrainHack? Explain why you believe this is the correct value.