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You are planning to produce a new action figure called Nia. However, you are very uncertain about the demand for the product. If it is
You are planning to produce a new action figure called "Nia." However, you are very uncertain about the demand for the product. If it is a hit, you will have net cash flows of $ million per year for three years starting next year le at If it falls, you will only have net cash flows of $ million per year for two years also starting next year There is an equal chance that it will be a hit or failure probability percent You will not know whether it is a hit or a failure until the first year's cash flows are in ie at You must spend $ million immediately for equipment and the rights to produce the figure. If you can sell your equipment for $ million once the first year's cash flows are received, calculate the value of the abandonment option. The discount rate is percent.
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