New electric based on the back to the future

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Reference no: EM131048256

The Alset car company, a prominent car manufacturer in Fremont, may design a new electric based on the "Back to the Future" movies. First, Alset would have to invest $10,000 in t = 0 for the design and testing of the new car. Alset's managers believe there is a 70% probability that the phase will be successful and the project will continue. If Stage 1 is not successful, the project will be abandoned at zero salvage value. The next stage, if undertaken, would consist of making the mock-ups and prototypes of three cars. This would cost $600,000 at t = 1. If the cars test wll, Alset would go into production. If they do not, the mockups and prototypes could be sold for $200,000. The managers estimate the probability is 80% that the cars will pass testing, and that Stage 3 will be undertaken. Stage 3 consists of converting an unused production line to produce the new design. This would cost $1.2M at t = 2. If the economy is strong at this point, the net value of sales would be $3.2M; if the economy is weak, the net value would be $1.6M. Both net values occur at t = 3, and each state of the economy has a probability of 0.5. Alset's corporate cost of capital is 14%. Construct a decision tree on an excel sheet and determine the project's expect NPV.

Reference no: EM131048256

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New electric based on the back to the future : The Alset car company, a prominent car manufacturer in Fremont, may design a new electric based on the "Back to the Future" movies. First, Alset would have to invest $10,000 in t = 0 for the design and testing of the new car. Alset's managers believe..

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