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Case: Kinston Industries has come up with a new mountain bike prototype and is ready to go ahead with pilot production and test marketing. The pilot production and test marketing phase will last for two years and cost $500,000 today. Your management team believes that there is a 60% chance that the test marketing will be successful and that there will be sufficient demand (high demand) for the new mountain bike. If the test-marketing phase is successful and demand is high, then Kinston Industries will invest $3 million in year two to build a plant that will generate expected annual after tax cash flows of $400,000 in perpetuity starting from year three. If the test marketing is not successful (demand for the new mountain bike is low), Kinston can still go ahead and build the new plant, but the expected annual after tax cash flows would be only $200,000 in perpetuity starting from year three. Kinston has the option to stop the project in year three. Then Kinston can sell the prototype mountain bike to an overseas competitor for $330,000. Kinston's cost of capital is 10%. Assume that cash flows occur at the end of the year.
List of any five (5) authoritative information sources about trends and market forces to identify and understand the characteristics of products and services.
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