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Decision Tree

3. An inventor offers to sell you patent rights to a device for $100,000. You have data to suggest a 35% chance of market success yielding net cash flows of $200,000 per year for 5 years. If not a success, no revenues are expected. With MARR equal to 20%, construct a decision tree and analyze the expected present worth. Would you buy these patent rights?

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Solution Summary

The solution uses decision tree to analyze the expected present worth of the purchase of patent rights.