You Are Planning to Produce a New Action Figure Called

question 5

Multiple Choice

You are planning to produce a new action figure called "Hillary". However, you are very uncertain about the demand for the product. If it is a hit, you will have net cash flows of $50 million per year for 3 years (starting next year) . If it fails, you will only have net cash flows of
$10 million per year for 2 years (starting next year) . There is an equal chance that it will be a hit or failure (probability = 50%) . You will not know whether it is a hit or a failure until the first year's cash flows are in. You have to spend $80 million immediately for equipment and the rights to produce the figure. If you can sell your equipment for $60 million once the first year's cash flows are received, calculate the NPV with the abandonment option. (The discount rate is 10%)

• A) -9.1
• B) +9.1
• C) +13.99
• D) -14.4

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Definitions:

Rituals

Prescribed or customary behaviors and ceremonies that hold significance within a culture or society.

Reification

The conceptual process by which abstract concepts, ideas, or social constructs are made tangible or treated as real and concrete entities.

Economic Exchanges

Economic exchanges are transactions involving the transfer of goods, services, or resources between parties, usually in a market context.

Historical Materialism

A theoretical framework in the social sciences, originated by Karl Marx, that focuses on the material economic conditions shaping society and history.