21 Jun You are working in the fina
You are working in the finance department of MicroNet Technologies Ltd (MNT). The Company has
spent $2.7 million in research and development over the past 18 months developing technology
which will be incorporated into driverless sports cars. MNT now need to choose between the
following three options for bringing the product to market. These options are:
Option A: Manufacturing the product “in-house” and selling directly to the market
Option B: Licensing another company to manufacture and sell the product in return for a royalty
Option C: Sell the patent rights outright to the company mentioned in option B
Your task
Your manager, MNT’s CFO, Dr Sarina Jones, has asked you to evaluate the three different options and
draft a memo to the Board of Directors providing recommendations on the alternatives, along with
supporting analyses.
Dr Jones has outlined the following three (3) areas you need to cover in your memo:
1) Analyse base case figures for the three options and using NPV as the investment decision
rule;
2) Provide recommendations based on the base-case analyses;
3) Provide recommendations on further analyses and discuss factors that should be considered
prior to making a final decision on the three options (Note. You do NOT have to undertake
any further financial analyses).
Further details for the various options are as follows:
Option A: Manufacturing the product “in-house” and selling directly to the market
Three months ago, MNT paid an external consultant $800,000 for a production plan and demand
analysis. The consultant recommended producing and selling the product for five years only as
technological innovation will likely render the market too competitive to be profitable enough after
that time. Sales of the product are estimated as follows:
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