About introducing a new surface cleaning machine

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Applied Nanotech is thinking about introducing a new surface cleaning machine. The marketing department has come up with the estimate that Applied Nanotech can sell 15 units per year at $300,000 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 $14.8 million initial investment. The finance department has estimated that a discount rate of 16 percent should be used. 1) What is the base-case NPV? 2)If unsuccessful, after the first year the project can be dismantled and will have an aftertax salvage value of $10.5 million. Also, after the first year, expected cash flows will be revised up to 20 units per year or to 0 units, with equal probability. What is the revised NPV?

Reference no: EM131304117

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