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Kinston Industries has come up with a new mountain bike prototype and is ready to go ahead with pilot production and test marketing. This phase
Kinston Industries has come up with a new mountain bike prototype and is ready to go ahead with pilot production and test marketing. This phase will last for one year, and it will cost $12 million, which will be incurred at t=0. Your management team believes that there is a 50% chance that the test marketing will be successful and that there will be sufficient demand for the new mountain bike. In this case, Kinston Industries will invest $10 million at the end of year one (t=1) to build a plant that will generate expected annual after-tax cash flows of $4 million in perpetuity beginning at the end of year two (t=2). If the test marketing is not successful, Kinston can still go ahead and build the new plant, but the expected annual after-tax cash flows would be only $1.3 million in perpetuity beginning at t=2. Kinston also has the option to stop the project at t=1. The cost of capital is fixed at 10%. What is the NPV of the Kinston Industries Mountain Bike Project? Please express your answer in million dollars rounded to one digit after the decimal point
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