Use the Information for the Question(s)below

question 28

Essay

Use the information for the question(s)below.
Kinston Industries has come up with a new mountain bike prototype and is ready to go ahead with pilot production and test marketing.The pilot production and test marketing phase will last for one year and cost $500,000.Your management team believes that there is a 50% chance that the test marketing will be successful and that there will be sufficient demand for the new mountain bike.If the test-marketing phase is successful,then Kinston Industries will invest $3 million in year one to build a plant that will generate expected annual after-tax cash flows of $400,000 in perpetuity beginning in year two.If the test marketing is not successful,Kinston can still go ahead and build the new plant,but the expected annual after-tax cash flows would be only $200,000 in perpetuity beginning in year two.Kinston has the option to stop the project at any time and sell the prototype mountain bike to an overseas competitor for $300,000.Kinston's cost of capital is 10%.
-Assuming that Kinston has the ability to sell the prototype in year one for $300,000,draw a decision tree detailing the Kinston Industries Mountain Bike Project.

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Definitions:

Executive Director

An Executive Director is the top executive responsible for managing the operations and activities of an organization or non-profit, ensuring it meets its strategic goals.

Interagency Service

A collaborative effort between multiple agencies to provide comprehensive services to meet the needs of individuals or communities.

Group Work Services

Professional services that leverage the dynamics of group interactions to address individual issues, foster growth, or achieve therapeutic objectives.

Frequency of Interaction

The rate at which members of a group or social network communicate or interact with one another.