Question $1$

Thanks to acquisition of a key patent, your company now has exclusive production rights for barkelgassers $($BGs$)$ in North America. Production facilities for $200,000$ BGs per year will require a $$25$ million immediate capital expenditure. Production costs are estimated at $$65$ per BG$.$ The BG marketing manager is confident that all $200,000$ units can be sold for $$100$ per unit $($in real terms$)$ until the patent runs out five years hence. After that the marketing manager hasn't a clue about what the selling price will be$.$ What is the NPV of the BG project? Assume the real cost of capital is $9\%.$ To keep things simple, also make the following assumptions:

The technology for making BGs will not change. Capital and production costs will stay the same in real terms.

Competitors know the technology and can enter as soon as the patent expires, that is$,$ they can construct new plants in year $5$ and start selling BGs in year $6.$

If your company invests immediately, full production begins after $12$ months, that is$,$ in year $1.$

Hence, sales would begin in year $2.$

There are no taxes.

BG production facilities last $12$ years. They have no salvage value at the end of their useful life.