We are examining a new project. We expect to sell 6,700 units per year at $61 net cash flow apiece for the next 10 years

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We Are Examining A New Project We Expect To Sell 6 700 Units Per Year At 61 Net Cash Flow Apiece For The Next 10 Years 1 (50.38 KiB) Viewed 89 times

We are examining a new project. We expect to sell 6,700 units per year at $61 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $616,700 = $408,700. The relevant discount rate is 15 percent, and the initial Investment required is $1,780,000. After the first year, the project can be dismantled and sold for $1,650,000. Suppose you think it is likely that expected sales will be revised upward to 9,700 units if the first year is a success and revised downward to 5,300 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 and round your answer to 2 decimal places, e.g., 32.16.) NPV b. What is the value of the option to abandon? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Option value $