20. Abandonment Value (LO5) We are examining a new project. We expect to sell 8,750 units per year Page 427 at $189 net cash flow apiece (including CCA) for the next 16 years. In other words, the annual operating cash flow is projected to be $189 x 8,750 = $1,653,750. The relevant discount rate is 14%, and the initial investment required is $5,500,000. a. What is the base-case NPV? b. After the first year, the project can be dismantled and sold for $2,800,000. If expected sales are revised based on the first year's performance, when would it make sense to abandon the investment? In other words, at what level of expected sales would it make sense to abandon the project? c. Explain how the $2,800,000 abandonment value can be viewed as the opportunity cost of keeping the project one year. 21. Abandonment (LO5) In the previous problem, suppose you think it is likely that expected sales will be revised upward to 9,500 units if the first year is a success and revised downward to 4,300 units if the first year is not a success. a. If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. b. What is the value of the option to abandon? 22. Abandonment and Expansion (LO5) In the previous problem, supposed the scale of the project can be doubled in one year in the sense that twice as many units can be produced and sold. Naturally, expansion would be desirable only if the project is a success. This implies that if the project is a success, projected sales after expansion will be 17,600. Again, assuming that success and failure are equally likely, what is the NPV of the project? Note that abandonment is still an option if the project is a failure. What is the value of the option to expand? NOTE= I only need to answer question 22 but because it's based off the previous question, I thought providing the previous question would help you get to the answer. Please provide new answer with clear details. Will give a good review, thank you in advance.| 20. Abandonment Value (LO5) We are examining a new project. We expect to sell 8,750 units per year Page 427 at $189 net cash flow apiece (including CCA) for the next 16 years. In other words, the annual operating cash flow is projected to be $189 x 8,750 = $1,653,750. The relevant discount rate is 14%, and the initial investment required is $5,500,000. a. What is the base-case NPV? b. After the first year, the project can be dismantled and sold for $2,800,000. If expected sales are revised based on the first year's performance, when would it make sense to abandon the investment? In other words, at what level of expected sales would it make sense to abandon the project? c. Explain how the $2,800,000 abandonment value can be viewed as the opportunity cost of keeping the project one year. 21. Abandonment (LO5) In the previous problem, suppose you think it is likely that expected sales will be revised upward to 9,500 units if the first year is a success and revised downward to 4,300 units if the first year is not a success. a. If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. b. What is the value of the option to abandon? 22. Abandonment and Expansion (LO5) In the previous problem, supposed the scale of the project can be doubled in one year in the sense that twice as many units can be produced and sold. Naturally, expansion would be desirable only if the project is a success. This implies that if the project is a success, projected sales after expansion will be 17,600. Again, assuming that success and failure are equally likely, what is the NPV of the project? Note that abandonment is still an option if the project is a failure. What is the value of the option to expand? NOTE= I only need to answer question 22 but because it's based off the previous question, I thought providing the previous question would help you get to the answer. Please provide new answer with clear details. Will give a good review, thank you in advance.|