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Your company has a new project to be considered. You are given the following information for the best guess of related outcomes for the project.

Your company has a new project to be considered. You are given the following information for the best guess of related outcomes for the project. The cost of developing and market testing the product over the next year is $225 million. If the test is successful, which is expected to be 65%, the company will spend another $800 million to put productive capabilities in place. The expected cash flows after tax for a successful project are $225 million each year for the next six years with a probability of .8; there is a 20% chance of zero NPV. If the test fails, the cash flows associated with continuing through the sixth year is $125 million per year after tax. The company uses a 12% discount rate for these types of projects. Should the company undertake testing or not? Calculate NPV for both testing and not testing options.

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