Ross Enterprises is thinking about introducing a new surface cleaning machine. The marketing

department has come up with the estimate that the company can sell $20$ units per year at $$195,000$

net cash flow per unit for the next five years. The engineering department has come up with the

estimate that developing the machine will take a $$14\mathrm{.}5$ million initial investment. The finance

department has estimated that a discount rate of $11\%$ should be used.

a$.$ What is the base$-$case NPV$?$

b$.$ If unsuccessful, after the first year, the project can be dismantled and will have an after$-$tax

salvage value of $$10\mathrm{.}4$ million. Also, after the first year, expected cash flows will be revised

up to $30$ units per year or down to $0$ units with equal probability. What is the revised NPV$?$