Yuli copters is in business of manufacturing and designing

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Yuli Copters is in business of manufacturing and designing helicopters for commercial, military and pleasure use. They are considering a $200 million upgrade to their production line for the Yuli Flyer-a remote fly drone helicopter with a payload of 300 pounds. The potential cash flow is predictable at net revenues of $160 million per year for four years. Currently, they were advised of potential patent infringement and to remove this problem they are considering buying a license. SohnCo will sell a license is good for four years of exclusive use of the patent and related intellectual property. Yuli Copters uses a corporate MARR of 12% and their risk-free alternatives are 6%. The VP of Engineering at Yuli Copters evaluates market volatility in demand is 35%. The VP of Marketing estimates market volatility in demand at 25 percent

Since the VP's trust you, they asked you to understand the most they should pay for a license from SohnCo.

Yuli Copters is known to be destructive in ignoring intellectual property claims. Suppose they just go ahead with the project as stated above. (In other words, they decide not to pay for the license.) Sometime in year 3 of 7, a court decision needs them to reimburse SohnCo $25 million. They pay at the end of year 4. How does this strategy work for them? Are they better off licensing or being aggressive? 

Reference no: EM13370292

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