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Herjavec Enterprises is thinking about introducing a new surface cleaning machine. The marketing department has...

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Accounting

Herjavec Enterprises is thinking about introducing a new surface cleaning machine. The marketing department has come up with the estimate that the company can sell 14 units per year at $309,000 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 $15.3 million initial investment. The finance department has estimated that a discount rate of 13 percent should be used.
a. What is the base-case NPV?(A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89.)
b. If unsuccessful, after the first year, the project can be dismantled and will have an aftertax salvage value of $11.4 million. Also, after the first year expected cash flows will be revised up to 19 units per year or down to 0 units with equal probability. What is the revised NPV?(Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89.)
a. Base-case NPV
$
-84,457.56
b. Revised NPV
image

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