abandonment decisions

Problem 9-23 Abandonment Decisions Trask Products, Inc., is considering a new product launch. The firm expects to have an annual operating cash flow of $8.2 million for the next 7 years. The required return for this project is 10 percent. The initial investment is $38.2 million. Assume that the project has no salvage value at the end of its economic life. a. What is the NPV of the new product? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 1,234,567.89.) NPV $ 1721034.31 b. After the first year, the project can be dismantled and sold for $25.2 million. If the estimates of remaining cash flows are revised based on the first year's experience, at what level of expected cash flows does it make sense to abandon the project? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 1,234,567.89.) Annual cash flows $