Case study of oklahoma instruments


Oklahoma instruments (oi) is considering a project called f-200 that has an up-front cost of $250,000. The project's subsequent cash flows are critically dependent on whether another of its products, f-100, becomes an industry standard. There is a 50% chance that the f-100 will become the industry standard, in which case the f-200's expected cash flows will be $110,000 at the end of each of the next 5 years. There is a 50% chance that the f-100 will not become the industry standard, in which case the f-200's expected cash flows will be $25,000 at the end of each of the next 5 years. Assume that the cost of capital is 12%.

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