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