enting his decision.

3.24 Reconsider the research-and-development decision in Figure 3.32. If

you decide to continue the project, you will have to come up with

the $2 million this year (Year 1). Then there will be a year of wait-

ing (Year 2) before you know if the patent is granted. If you decide

to license the technology, you would receive the $25 million distrib-

uted as $5 million per year beginning in Year 3. On the other hand,

if you decide to sell the product directly, you will have to invest 55

million in each of Years 3 and 4 (to make up the total investment

of $10 million). Your het proceeds from selling the product, then,

would be evenly distributed over Years 3 through 9.

Assuming an interest rate of 15%, calculate the NPV at the end of

each branch of the decision tree.