Question
SEC planned to invest RM1,500 million at Year 1 and expected to receive RM900 million per year in each of the next five years. In
SEC planned to invest RM1,500 million at Year 1 and expected to receive RM900 million per year in each of the next five years. In Year 0, the engineering group had developed the technology for a solar-powered plane engine, but test marketing had not begun. The marketing department proposed that SEC develop some prototypes and conduct test marketing of the engine. A corporate planning group, including representatives from production, marketing, and engineering, estimated that this preliminary phase would take a year and cost RM100 million. Furthermore, the group believed there was a 75 percent chance that the marketing test would prove successful. After completion of the marketing tests, SEC would decide whether to engage in full-scale production, necessitating the investment of RM1,500 million. Discount rate equal to 15%
Required:
Using a decision tree, advise SEC on whether to go ahead with the project or not.
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