Applied Nanotech is thinking about introducing a new surface cleaning machine. The marketing department has come up with the estimate that the company can sell 10 units
per year at $153,000 net cash flow per unit for the next five years. The engineering department has come up with the estimate that developing the machine will take a $5.9 million initial investment. The finance department has estimated that a discount rate of 13 percent should be used.

a. What is the base-case NPV?

b. If unsuccessful, after the first year the project can be dismantled and will have an aftertax salvage value of $3.1 million. Also, after the first year, expected cash flows will be revised up to 20 units per year or to 0 units, with equal probability. What is the revised NPV?