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We are examining a new project. We expect to sell 5,500 units per year at $69 net cash flow apiece for the next 10 years.
We are examining a new project. We expect to sell 5,500 units per year at $69 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $695,500=$379,500. The relevant discount rate is 19 percent, and the initial investment required is $1,540,000. After the first year, the project can be dismantled and sold for $1,260,000. Suppose you think it is likely that expected sales will be revised upward to 8,500 units if the first year is a success and revised downward to 4,100 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 Intermedlete coleuletions and round your answer to 2 declmal pleces, e.9., 32.16.) b. What is the value of the option to abandon? (Do not round Intermedlate calculetlons and round your answer to 2 decimal pleces, e.g., 32.16.) Answer is complete but not entirely correct
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