You Are Planning to Produce a New Action Figure Called

question 8

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 three years (starting next year,i.e.,at t = 1) .If it fails,you will only have net cash flows of $10 million per year for two years (also 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,i.e.,at t = 1.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 value of the abandonment option.(The discount rate is 10%.)

• A)-9.15
• B)+13.99
• C)+23.14
• D)01)

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Definitions:

Euthanize

The act of humanely ending the life of a living being, typically to relieve severe pain or suffering, often referred to in the context of animals.

Veterinarians

Medical professionals who practice veterinary medicine, diagnosing and treating diseases, disorders, and injuries in animals.

Coping Mechanisms

Strategies that individuals employ to manage stressful situations, emotions, and to mitigate personal and psychological conflicts.

Children

Young human beings, typically defined as persons from birth to adolescence.