A company has evaluated two product development projects and determined their expected lifetime income given a set of events. ,Project A has an initial cash outlay of $150,000 and Project B has an initial cash outlay of $200,000. The projects are mutually exclusive. , ,Event Outcomes Project A Project B,Result Likelihood Income, adjusted for time Income, adjusted for time,Down market and poor launch 30% $50,000 $0 ,Up market and poor launch 25% $250,000 $100,000 ,Down market and successful launch 25% $100,000 $500,000 ,Up market and successful launch 20% $350,000 $600,000 ,,, A What are the expected cash flows from Project A and Project B? , B Which project would you recommend? Why? ,,A third project can be undertaken along with A or C. ,,Event Outcomes Project C Income, adjusted for time ,Down market and poor launch $60,000 ,Up market and poor launch $300,000 ,Down market and successful launch $80,000 ,Up market and successful launch $320,000 ,, C What are the expected cash flows from Project C?, D If the company is risk averse, would you recommend a combination of Project A and C, or Project B and C? Why?,
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