You are considering the wholesale purchase of 10,000 computers for $6,000,000 with the idea of reselling them at retail. .

All cash inflows from sales are estimated as at the end of the year.

In the first year each computer will sell for $1,000. In the second year each computer will sell for $500 since it will then be considered an older model.At the end of the second year you will have to pay another company $50 per computer for the proper disposal of any remaining computers.

Each year, there is a 60% chance there will be high sales and a 40% chance of low sales.In a high sales year, you will sell 6,000 computers and in a low sales year you will only sell 3,000.

Since students are using the school's computers, the school gets quite upset if a computer is defective. So when they negotiate the purchase of the 7000, they may insist that if a computer is found defective in the year after purchase, you must take back and refund them $450 for each defective one at the end of the year (and you must dispose of it properly of course.)There is a 10% chance that a computer will be defective. Use an opportunity cost of capital of 10% and show all work.

i.Produce a decision tree that shows the option to sell to the school underthese terms.

ii.Now does this option to sell to the school increase the value of the investment?

What is the value of the total investment ?