How the project can be dismantled

Assignment Help Finance Basics

Reference no: EM131971885

Question: We are examining a new project. We expect to sell 5,900 units per year at $73 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $73 × 5,900 = $430,700. The relevant discount rate is 16 percent, and the initial investment required is $1,700,000. After the first year, the project can be dismantled and sold for $1,530,000. Suppose you think it is likely that expected sales will be revised upward to 8,900 units if the first year is a success and revised downward to 4,500 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. (Do not round intermediate calculations and round your answer to 2 decimal places. e.g., 32.16.)

NPV $

b. What is the value of the option to abandon? (Do not round intermediate calculations and round your answer to 2 decimal places. e.g., 32.16.)

Option value $

Reference no: EM131971885

Questions Cloud

What type of magnetic pole is the top pole face : The forcer a wire is a maximum of 8 50 x 10-2 N when graced between the pole faces of a magnet. What type of magnetic pole is the top pole face

Examine the generally accepted components of erm : Examine the generally accepted components of ERM which are present in your company and evaluate whether these components are working, failing.

Beautiful statement by robert kennedy : Read the beautiful statement by Robert Kennedy on the important aspects that GDP does not include (available in the slides and the textbook).

Compute earnings per share before the expansion : The Lopez-Portillo Company has $10.1 million in assets, 90 percent financed by debt and 10 percent financed by common stock.

How the project can be dismantled : We are examining a new project. We expect to sell 5,900 units per year at $73 net cash flow apiece for the next 10 years.

Prepare a variance report showing the companys revenue : Next, using this flexible budget and the actual results, prepare a variance report showing the company's revenue and spending variances for September.

Discuss the three ways in which the gross domestic product : Discuss the three ways in which the gross domestic product (GDP) can be measured? Why does each of them end up with approximately the same value?

Recommend solutions to the housing shortage : Use and apply the concepts from the week's lesson to recommend solutions to the housing shortage.

What is the change in the average selling price for desktops : What is the total revenue for dell? what is the change in the average selling price for desktops pcs? why do you think this occurred?

User Account

All Pages