We are examining a new project. We expect to sell 8,300 units per year at $167 net cash flow apiece (including CCA) for the next 16 years. In other words, the annual operating cash flow is projected to be $167 8,300 = $1,386,100. The relevant discount rate is 18%, and the initial investment required is $4,610,000. Suppose you think it is likely that expected sales will be revised upward to 9,050 units if the first year is a success and revised downward to 3,850 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. Round the final answer to 2 decimal places. Omit $ sign in your response.)

NPV $

b. After the first year, the project can be dismantled and sold for $2,346,000. What is the value of the option to abandon? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)

The value of the option to abandon $