Cost of initial investment, Electrical Engineering

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Based upon the following inputs, propose the optimal course of action for this venture:

Probability of success: 30%; probability of failure: 30%; base case probability: 40%
Cost of initial investment is $20mm
Success NPV: $70mm; Base case NPV: $25mm
Two upfront options:
- Staged investment of $10mm/stage; no impact on probabilities or scenario NPV but allows abandonment after first stage investment in case of anticipated failure
- Deferral of investment by 1 year to pursue $3mm feasibility study; decreases odds of failure by 10% and shifts odds evenly to success and base case
Two midpoint options (assumes either success or base case scenario):
- Operate venture indefinitely and realize full NPV
- Reinvest for new market expansion under the same terms as the upfront option with the following changes:

Chance of success is lowered by 5% and chance of failure is increased by 5%

Upfront cost is higher by $5mm but PV of future cash flows remains unchanged

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