What is the estimated net present value of the project

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Problem 1: Tutor.com is considering a plan to develop an online finance tutoring package that has the cost and revenue projections shown below. One of Tutor's larger competitors, Online Professor (OP), is expected to do one of two things in Year 5: (1) develop its own competing program, which will put Tutor's program out of business, or (2) offer to buy Tutor's program if it decides that this would be less expensive than developing its own program. Tutor thinks there is a 35% probability that its program will be purchased for $7.0 million and a 65% probability that it won't be bought, and thus the program will simply be closed down with no salvage value. What is the estimated net present value of the project (in thousands) at a WACC = 9.0%, giving consideration to the potential future purchase?

Original Project:
Year 0 - -$3,500
Year 1 - $600
Year 2 - $600
Year 3 - $600
Year 4 - $600
Year 5 - $600

Reference no: EM132949985

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