Dupont is considering licensing a low liquid discharge (LLD) water treatment system from a small company that developed the process and owns the license. Dupont can purchase a 1-year option for $100,000 that will provide time to pilot test the LLD process or Dupont can acquire the license now at a cost of $1.8 million plus 25% of sales paid annually to the license owner. If they wait 1 year, the cost will increase to $1.9 million plus 30% of sales paid annually. If sales are estimated to be $1,000,000 per year over the 5-year license period, should Dupont purchase the license now or purchase the option now and possibly license it after the 1-year test period? Assume the MARR is 15% per year.
Dupont is considering licensing a low liquid discharge
(LLD) water treatment system from a small company that developed the process and owns the
license. Dupont can purchase a 1-year option for
$100,000 that will provide time to pilot test the
LLD process or Dupont can acquire the license
now at a cost of $1.8 million plus 25% of sales paid
annually to the license owner. If they wait 1 year,
the cost will increase to $1.9 million plus 30% of
sales paid annually. If sales are estimated to be
$1,000,000 per year over the 5-year license period,
should Dupont purchase the license now or purchase
the option now and possibly license it after
the 1-year test period? Assume the MARR is 15%
per year.
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