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Use the Information for the Question(s)below

question 26

Multiple Choice

Use the information for the question(s) below.
DM Skateboard company is planning to develop a new electric skateboard.In order for the project to be successful,the company must develop a new deck to accommodate a lightweight battery and a remote that is easy to operate while moving in an open environment.The company estimates the following costs,times,and probabilities of success for each component of the new skateboard: All three risks are idiosyncratic and the risk-free rate of interest is 5%.The company does not have the resources to develop all the components at the same time.Therefore,management needs to decide in what order to develop the technologies.
-Assume DM Skateboard Company has estimated that,if all stages are successful,the present value of all future profits will be $4 million (valued at the completion of all three phases of development) .If DM does the three stages in the correct order,what is the NPV of the project?

Evaluate the interest component of financial decisions involving investments or loans.

Distinguish between ordinary annuities and annuities due.

Understand the impact of compounding frequency on investment growth and loan costs.

Use provided tables or formulas for present value and future value calculations.

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