Does white nuclear have a positve net present value

Reference no: EM133279162

Question - White Nuclear - You are the CEO of Body Capital, a small venture capital firm specializing in energy technology. You have the opportunity to invest in White Nuclear, who is designing a new small-scale nuclear reactor. You estimate that there is a one-in-two chance that the firm will be successful in developing Its new reactor, codenamed Candlestick; development will cost $8m. If development is successful, White Nuclear will then pursue regulatory clearance, which will cost $6m; you estimate only a one-in-three chance that they will obtain such clearance. If successful in both steps, you expect the firm to earn $64m.

a) Should you invest in White Nuclear? That is, does White Nuclear have a positve net present value?

b) Suppose now that White Nuclear can spend $1m today, before technological development, to ascertain for certain whether it will be able to attain regulatory approval if development is successful. (Note that this does not change how much you must spend to attain regulatory approval later; it simply allows you to know whether you will be successtul.) How does this change your decision of whether to invest in White Nuclear?

c) Now suppose again that White Nuclear cannot ascertain today whether regulatory approval Will be forthcoming. However, if regulatory approval is attained, you expect that White Nuclear may be bought by Peacock Armaments; you estimate the probability that Peacock Armaments will be interested at one-half, and that they will pay $80m for the tirm. How does this change your decision of whether to invest in White Nuclear?

Reference no: EM133279162

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