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You are trying to decide whether to make an investment of $501.4 million in a new technology to produce Everlasting Gobstoppers. There candies will produce
You are trying to decide whether to make an investment of $501.4 million in a new technology to produce Everlasting Gobstoppers. There candies will produce profits of $101.3 million annually, a(n) 21% chance the market will produce profits of $48.5 million, and a(n) 19% chance that there will be no profits. The size of the market will become clear one year from now. Currently, the cost of capital of the project is 11.16% per year. There is a(n) 20%chance that the cost of capital will drop to 9.15% in year and ta at that level forever, and a(n) 80% chance that it will stay at 11.16% forever. Movements in the cost of capital are unrelated to the size of the candy market. Construct the decision tree that shows the choices you have: to make the investment either today or one year from now. What decision should you make if the one-year cost of capital is 15.74% and the profits last forever? a 60% chance that the market for these
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