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The Following Information Relates to Questions 11 and 12 only Anker Inc. has come up with a prototype wireless, robotic vacuum cleaner and is ready
The Following Information Relates to Questions 11 and 12 only Anker Inc. has come up with a prototype wireless, robotic vacuum cleaner and is ready to go ahead with pilot production and test marketing. The test marketing phase requires an investment of $1 million today. The management team believes that there is a 50% chance that test marketing will be successful and that there will be sufficient demand for the new robotic vacuum. The outcome of test marketing will become clear one year from now. If the test-marketing phase is successful, then Anker Inc. will invest $3 million immediately to build a plant that is expected to generate profits of $500,000 at the end of every year in perpetuity. If test marketing is not successful, Anker Inc. can still go ahead and build the new plant, but the expected profits would be only $250,000 at the end of every year in perpetuity. Anker Inc.'s cost of capital is 10%. QUESTION 11 The NPV of the vacuum cleaner project is around: O a. $136,364 b. -$90,909 O c. $0 O d. -$318,182 O e. None of the above
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