In a new project, we expect to sell 7,400 units per year at $59 net cash flow a piece for the next 10 years. In other wo
Posted: Wed May 18, 2022 10:28 pm
In a new project, we expect to sell 7,400 units per year at $59
net cash flow a piece for the next 10 years. In other words, the
annual operating cash flow is projected to be $59*7,400 = $436,600.
The relevant discount rate is 14% and the initial investment
required is $1.9 million.
After the first year, the project can be dismantled and sold for
$1.1 million. If expected sales are revised based on the
first year’s performance, when would it make sense to abandon the
investment? In other words, at what level of expected sales would
it make sense to abandon the project?
net cash flow a piece for the next 10 years. In other words, the
annual operating cash flow is projected to be $59*7,400 = $436,600.
The relevant discount rate is 14% and the initial investment
required is $1.9 million.
After the first year, the project can be dismantled and sold for
$1.1 million. If expected sales are revised based on the
first year’s performance, when would it make sense to abandon the
investment? In other words, at what level of expected sales would
it make sense to abandon the project?