A start-up company is making a decision on whether to develop a new internet social networking site. The site will cost $1 million to develop, but it is unclear whether the new technology critical to the site will work correctly. If development is successful, it will cost an additional $20 million next year to advertise the site to Internet users. If the site becomes popular with Internet users, it is expected to generate a present value of $100 million in advertising revenue. There is a 10 per cent chance that the site will be successfully developed and subsequently become popular with Internet users. The company's cost of capital is 15 per cent. Should the company pursue the project?

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The Answer of A start-up company is making a decision on whether to develop a new internet social networking site. The site will cost $1 million to develop, but it is unclear whether the new technology critical to the site will work correctly. If development is successful, it will cost an additional $20 million next year to advertise the site to Internet users. If the site becomes popular with Internet users, it is expected to generate a present value of $100 million in advertising revenue. There is a 10 per cent chance that the site will be successfully developed and subsequently become popular with Internet users. The company's cost of capital is 15 per cent. Should the company pursue the project?

A Start-Up Company Is Making a Decision on Whether to Develop