Success and revised downward

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Nature Products is considering a new project. The company expects to sell 9,000 units per year at $35 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $35 × 9,000 = $315,000. The initial investment required is $1,350,000. Assume a relevant discount rate of 14%:

After the first year, the project can be dismantled and sold for $950,000. Suppose it is likely that expected sales will be revised upward to 11,000 units if the first year is a success and revised downward to 4,000 units if it is a failure. If success and failure are equally likely, what is the NPV of the project?

Reference no: EM131647246

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