Estimates of the market for product

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Make an investment decision (company should invest or not in this project) of this project by providing calculations (using excel model):

Estimates of the market for this product are $1 billion. R&D costs are $5 mil, the probability of technical success is 40%. In line with the cleantech industry expert estimates assume that the discovery process takes 3 years. There is no required approval stage. At the commercialization stage there is a 50% chance to achieve a high state market penetration of 15% and a 50% chance of a low state of 4%. Cost of sales are 40% of revenue, marketing 15% and administrative expenses 10%. A 7-year commercialization period can be expected. The project's required return is 9%. This discount rate is applicable to the commercialisation phase. The risk-free rate is 1%, which is appropriate to be used in the discovery stage as you would expect no variation at all with general market conditions in this stage. The tax rate is 33%

Reference no: EM132528609

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