Problem 7-24 Expansion Decisions

Applied Nanotech is thinking about introducing a new surface cleaning machine. The marketing department has come up with the estimate that Applied Nanotech can sell 15 units per year at $297,000 net cash flow per unit for the next four years. The engineering department has come up with the estimate that developing the machine will take a $13.9 million initial investment. The finance department has estimated that a discount rate of 11 percent should be used.

a.	What is the base-case NPV? (A negative answer should be indicated by a minus sign. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Base-case NPV

$

b.

If unsuccessful, after the first year the project can be dismantled and will have an aftertax salvage value of $10.2 million. Also, after the first year, expected cash flows will be revised up to 20 units per year or to 0 units, with equal probability. What is the revised NPV? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Revised NPV

$