Hit or Miss Sports is introducing a new product this year. If its see-at-night soccer balls are a hit, the firm expects to be able to sell 57,000 units a year at a price of $50 each. If the new product is a bust, only 37,000 units can be sold at a price of $45. The variable cost of each ball is $20, and fixed costs are zero. The cost of the manufacturing equipment is $6.2 million, and the project life is estimated at 10 years. The firm will use straight-line depreciation over the 10-year life of the project. The firms tax rate is 35%, and the discount rate is 14%

If each outcome is equally likely, what is expected NPV? Will the firm accept the project? Suppose now that the firm can abandon the project and sell off the manufacturing equipment for $5.58 million if demand for the balls turns out to be weak. The firm will make the decision to continue or abandon after the first year of sales. What is expected NPV? Does the option to abandon change the firms decision to accept the project?