PLEASE SHOW WORK

We are examining a new project. We expect to sell 6,500 units per year at $63 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $63*6,500= $409,500. The relevant discount rate is 14 percent, and the initial investment required is $1,600,000.

1.What is the base-case NPV?

2.After the first year, the project can be dismantled and sold for $1,200,000. If expected sales are revised based on the first years performance, when would it make sense to abandon the investment? In other words, at what level of expected sales would it make sense to abandon the project?