TutorCom Is Considering a Plan to Develop an Online Finance $\mathrm{WACC}=\quad 9.0 \%$

question 37

Multiple Choice

Tutor.com is considering a plan to develop an online finance tutoring package that has the cost and revenue projections shown below.One of Tutor's larger competitors,Online Professor (OP) ,is expected to do one of two things in Year 5: (1) develop its own competing program,which will put Tutor's program out of business,or (2) offer to buy Tutor's program if it decides that this would be less expensive than developing its own program.Tutor thinks there is a 35% probability that its program will be purchased for $7.0 million and a 65% probability that it won't be bought,and thus the program will simply be closed down with no salvage value.What is the estimated net present value of the project (in thousands) at a WACC = 9.0%,giving consideration to the potential future purchase? Do not round intermediate calculations. $\mathrm{WACC}=\quad 9.0 \%$
$\begin{array}{ll}&0&1&2&3&4&5\\\hline\text { Original project: }&-\$3,500&\$600&\$600&\$600&\$600&\$600\end{array}$

$\begin{array}{ll}\text { Future} &\text { Prob. }\\\text { Buys } & 35 \% &&\$7,000\\\text { Doesn't buy } & 65 \%&&\$0\end{array}$

• A) 0$532.65
• B) 0$468.73
• C) 0$426.12
• D) 0$511.35
• E) 0$383.51

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Definitions:

Cell Body

The part of a neuron that contains the nucleus and most of the cytoplasm and organells.

Excitatory

Pertaining to or causing excitation, often describing neurotransmitters or synaptic inputs that enhance the activity of neurons.

Inhibitory

Characteristic of a substance or process that decreases the activity or efficiency of a neuron or an enzyme, typically reducing or stopping certain signals or reactions.

Neurotransmitters

Chemicals in the brain that transmit signals across a synapse from one neuron to another, playing key roles in the regulation of bodily functions and emotions.