Considering the possibility of abandonment

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Reference no: EM131601998

Allied Inc. is considering a new product launch. We expect to sell 7,000 units per year at $38 net cash flow a piece for the next 10 years. In other words, the annual operating cash flow is projected to be 38*7,000=$266,000. The relevant discount rate is 16%. and the initial investment is $1,040,000. After the first year, the project is equally likely to be revised upward to 9,500 units or downward to 3,800 units. The project can be dismantled and sold for $820,000. Considering the possibility of abandonment, what is the NPV of the project?

Reference no: EM131601998

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