You Are Planning to Produce a New Action Figure Called

Multiple Choice

You are planning to produce a new action figure called "Hillary". However, you are very uncertain about the demand for the product. If it is a hit, you will have net cash flows of $50 million per year for three years (starting next year [i.e., at t = 1]) . If it fails, you will only have net cash flows of $10 million per year for two years (also starting next year) . There is an equal chance that it will be a hit or failure (probability = 50 percent) . You will not know whether it is a hit or a failure until after the first year's cash flows are in . You have to spend $80 million immediately for equipment and the rights to produce the figure. If the discount rate is 10 percent, calculate Hillary's NPV.

A) −9.15
B) +13.99
C) +5.15
D) −14.40