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We are examining a new project. We expect to sell 5,200 units per year at...

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Finance

We are examining a new project. We expect to sell 5,200 units per year at $66 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $66 5,200 = $343,200. The relevant discount rate is 17 percent, and the initial investment required is $1,510,000. After the first year, the project can be dismantled and sold for $1,230,000. Suppose you think it is likely that expected sales will be revised upward to 8,200 units if the first year is a success and revised downward to 3,800 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

NPV=$_____

b.

What is the value of the option to abandon?

Option Value= $_______

I got 48,631.62

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