You are working in the finance department of Smartech Ltd (SMT). The Company has spent $3 million in research and development over the past 12 months developing cutting-edge battery technology which will be incorporated into the electric vehicle market.

Your Task Your manager, SMTs CFO, Ms Lucinda Harris, has asked you to evaluate the three different options and draft a memo to the Board of Directors providing recommendations on the alternatives, along with supporting analyses. Ms Harris has outlined the following three (3) areas you need to cover in your memo:

a) Analyse base-case figures for the three options and using NPV as the investment decision rule;

b) Provide recommendations based on the base-case analyses; c) Provide recommendations on further analyses and discuss factors that should be considered prior to making a final decision on the three options (Note. You do NOT have to undertake any further financial analyses).

Option 3: Sell the patent rights outright to the company mentioned in option 2 As an alternative to a licensing arrangement, BRB has offered to buy the patent rights to the product design from SMT for $13 million. This amount would be paid in 4 (four) equal annual instalments, with the first payable immediately.

General Information Relevant to the Analysis

SMTs weighted average cost of capital (WACC) is 14% and the company is subject to a 30% tax rate. Assume that royalties and patent right payments are treated as assessable income for tax purposes and that tax is paid at the end of the year in which the income is received. The company is not eligible for any research and development tax deductions. During the project analysis period(s), SMT is expected to have other sources of taxable income.