Solved

You Are Planning to Produce a New Action Figure Called

question 54

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 immediately after the first year's cash flows are received,calculate Hillary's NPV with this abandonment option.(The discount rate is 10%.The equipment can only be resold at the end of the first year.)

Definitions:

Passive People

People who often accept events or others' actions passively, without actively responding or opposing.

Open-Ended Questions

Questions formulated to elicit more detailed and thoughtful responses, allowing the respondent freedom to express themselves without restriction.

Deal

An agreement entered into by two or more parties, especially in a business context, for mutual benefit.

Person-Versus-Group Conflict

A situation where an individual's interests, opinions, or behaviors clash with those of a larger group.