Exploring the possibility of building fueling planes

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Reference no: EM132262559

You are exploring the possibility of building fueling planes for the U.S. Air Force. Before you can win the contract, you need to build a prototype plane to prove your design is viable. You estimate you will need to invest $2 billion today and R&D will take 5 years. If you win the contract after R&D, you estimate you will need to spend $5 billion to build the factory that day. You then will receive $850 million per year for 20 years starting 1 year from that day. If you have a 40% chance of winning the contract and your discount rate is 7%, should you make the prototype?

Reference no: EM132262559

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