NPV
Tony and Franzi, after graduating from the DMBA program, decide to launch a venture "Likable Lunches."
To do this, Franzi would need to invest $1,000 at t=0 for the ingredients and menu development for these lunches.
The assumption is that there is a 70% chance that this phase will be successful and will continue. If this stage is not successful,
the lunch project would be scrapped with no left overs :(
The second stage would consist of designing packaging and delivery of these lunches. This is estimated to cost $25,000 at t =1.
If the lunch design and delivery test well, Franzi and Tony would then go into production. If they do not, the designs could be sold for $5,000.
Success for the second stage is estimated at 85%.
The third and final stage consists of purchasing an old Delmonte plant for lunch production. This would cost $200,000 at t =2.
If the lunch economy is strong, the net value of sales would be $600,000; if the lunch economy is in recession, the net value would be $300,000.
There's a 50-50 chance of strong or weak lunch economy.
Franzi's and Tony's Cost of Capital is 10%.
What is Franzi's and Tony's expected NPV?