A. A small firm introduces its start-up project where it will sell a new product. The life of the project is 4 years. The project requires an initial investment in equipment of $1,000. The firm has an option to abandon the project after the first year and can sell the equipment for a net cash flow of $800. The project cost of capital is 10%. Each unit of the new product generates a net cash flow of $10. The firm expects to sell 50 units each year over the 4-year period

(i) Without the option to abandon, what is the net present value (NPV) of the start-up project?

(ii) Assuming that the net cash flow per unit of the new product remains $10 for the whole life of the start-up project. However, based on the first year sale performance, the expected sale of the new product for each year during the remaining life of the project will be revised and set equal to the sale of the first year. At what level of unit sale in the first year would it make sense for the firm to abandon the project?