We could pay extra money upfront and rearrange project

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We could pay extra money upfront and rearrange the project so that the uncertainty about the success of the technology is resolved before we have to make the second investment. To do so would require an immediate $110 million investment. If the technology is unsuccessful we will abandon the project. If the technology is successful, we will have to invest another $100 million at the end of year 1, and the technology will generate free cash flows of $80 million starting at the end of year 2 up to infinity, as in the previous case.

Assuming a discount rate of 20%, what should we do?

Reference no: EM131897974

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