Question
Boston Distillery is considering producing a line of craft beer. The project would have an initial cost of $467,671 to be paid immediately. Cash flows
Boston Distillery is considering producing a line of craft beer. The project would have an initial cost of $467,671 to be paid immediately. Cash flows are estimated to be $60,947 at the end of each semiannual period for 10 years. The distillery has the option to shut down the project after 10 years or update equipment and continue production. the update would cost $810,942 at the end of year 10. However, with this option, the project cash flows would increase by $18,971 (the total cash flow for this option would be $60,947+[$cf2]) per semiannual period for an additional 8 years starting one semiannual period after they pay for the update. Compute the NPV for both options and make your recommendation Assume the cost of capital for Boston Distillery is 9.55%.
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