Chapter 7 - Review Problems (Graded) G Saved Help S Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not in We are examining a new project. We expect to sell 6.700 units per year at $61 net cash flow aplece for the next 10 years. In other words, the annual operating cash flow is projected to be $61 x 6,700 - $408.700. The relevant discount rate is 15 percent, and the Initial investment required is $1,780,000. After the first year, the project can be dismantled and sold for $1,650,000. Suppose you think it is likely that expected sales will be revised upward to 9700 units if the first year is a success and revised downward to 5,300 units if the first year is not a success. 20 points a. If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of the option to abandon? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) X Answer is complete but not entirely correct. 47 886 27 X NPV Option value Chapter 7 - Review Problems (Graded) G Saved Help S Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not in We are examining a new project. We expect to sell 6.700 units per year at $61 net cash flow aplece for the next 10 years. In other words, the annual operating cash flow is projected to be $61 x 6,700 - $408.700. The relevant discount rate is 15 percent, and the Initial investment required is $1,780,000. After the first year, the project can be dismantled and sold for $1,650,000. Suppose you think it is likely that expected sales will be revised upward to 9700 units if the first year is a success and revised downward to 5,300 units if the first year is not a success. 20 points a. If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of the option to abandon? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) X Answer is complete but not entirely correct. 47 886 27 X NPV Option value