Submit your prototype model for the case below: SuperChem, Inc. SuperChem first conceived Ultra, a proprietary specialty chemical, in early 2007. Ultra is designed for use in the intermediate stages of plastic manufacturing and is targeted to replace a competing product with 2009 sales of over $2 billion worldwide. The advantages of Ultra over the competition are proven, and market research indicates customers are willing to pay a 10-25% premium for Ultra. The future unit price (per barrel) is uncertain given the volatility of key chemicals used in the existing manufacturing process. The market price of the current chemical technology (the price paid by plastic manufacturers to buy the product) is near its 10-year aver- age of $55 per barrel, but it has been as low as $45 and as high as $75. While SuperChems engineers are excited by Ultras market potential, they cannot profitably manufacture it today. Using current approaches in a small-scale pilot plant, the team demon- strated production of Ultra for $90 per barrel, but was unable to reduce the cost further. Last month, management recommended terminating the Ultra program unless new options could be found for achieving profitability. To save the program, the engineers are proposing a two-year R&D study that they believe has a 10% chance of achieving as much as a 50% reduction in the unit cost. This $15 million effort will upgrade the pilot plant to test several new manufacturing approaches that will work together to bring down the unit cost. The team agrees that the Ultra program should be shut down if this effort is unsuccessful. They also note that given the rate of advance of next-generation technology, the effective product life for Ultra is about 4-7 years (from launch) before new technology comes out and re- places Ultra. If the R&D effort works, the current business plan calls for construction of a full-scale manu- facturing plant at a cost of $250 million to be online by the end of 2012. The proposed plant has a design capacity of 30 million barrels per year and could be expanded if sales exceed capacity. The plant has negligible fixed costs and is designed for flexible production; SuperChem would only produce Ultra if the market price exceeds the unit cost. Historically, SuperChems R&D program has a return in excess of five times R&D spending, and they typically expect new opportunities to meet or exceed this performance hurdle. Because the outcomes of R&D projects are extremely uncertain, SuperChem defines a programs return as its expected NPV. Expected NPV is calculated by weighting (or multiplying) the NPV of each outcome by that outcomes probability. Therefore, when calculating the expected NPV for Ultra, the NPV of the cash flows that follow a successful R&D effort must be multiplied by 10%.