Piper Inc. is a large cosmetics company that made an initial small investment in a start-up company, Oscorp, which was developing an organic face lotion. This gave Piper controlling interests in the start-up company. However, Oscorp soon began to have financial difficulties because of principal-agent problems. As a result, Piper did not invest in the next stage of development and pulled out of the company. This approach to strategic alliance is referred to as a

a real-options perspective

Explanation:

A real-options strategy or perspective regarding investments is carried out when the investor is not sure that the results will be positive or not. For example, investing in a startup is always risky since the chances of success are not very high. The investor will keep investing only as long as the results are positive. It is like investing in tranches.

NPV: $51,138.24;

Payback Period: 4.86 years

Explanation:

Using the even cash flow distribution assumption, the project will completely recover the initial investment after

P30/P35 = 0.86 of Year 5:

Payback = 4 + = 4.86 years.