What is the NPV of this project

Reference no: EM132209273

Question - You are considering launching a new product. The initial investment is $12 million. If successful, the product is supposed to generate $4 million in net cash flows for 15 years. If unsuccessful, the product is supposed to generate $0.6 million in net cash flows for 15 years. The probability of successful product launch is 50% and the probability of unsuccessful product launch is 50%.

If the project turns out to be successful, you have the option to add one more project at the end of the first year. If the project turns out to be unsuccessful, you have the option to abandon the project at the end of the first year with an after-tax salvage value of $2.4 million.

The discount rate for this project is 16%. What is the NPV of this project?

Reference no: EM132209273

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