Marcal Corp is considering the purchase of an electronics company, which would require an initial investment of $500 million. Marcal estimates of the electronics company would provide net cash flows of $78 million at the end of each of the next 20 years.The cost of capital for the electronics company is 15%.

a.Calculate NPV.Should Marcal purchase the electronics company?Why?

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.)

Marcal can wait for 1 year and find out whether the cash flows will be $50 million per year or $90 million per year before deciding to purchase the company.If itwaits to purchase, Marcal can no longer sell the company for $450 million 2 years after purchase.Does decision-tree analysis indicate that it makes sense to purchase the electronics company?If so, when?Again, assume that all cash flows are discounted at 15%.(NPV calculation required)