Question
Please show work We are examining a new project. We expect to sell 9,000 units per year at $35 net cash flow apiece for the
Please show work
We are examining a new project. We expect to sell 9,000 units per year at $35 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $35 9,000 = $315,000. The relevant discount rate is 16 percent, and the initial investment required is $1,350,000. After the first year, the project can be dismantled and sold for $950,000. Suppose you think it is likely that expected sales will be revised upward to 11,000 units if the first year is a success and revised downward to 4,000 units if the first year is not a success. |
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 final answer to 2 decimal places. (e.g., 32.16)) |
NPV | $ |
b. | What is the value of the option to abandon?(Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
Option value | $ |
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