What is the revised npv given that the firm can abandon

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Reference no: EM131972182

M Inc asks you to perform a feasibility study of a new video game that requires an initial investment of $8 million. M Inc. expects a total annual operating cash flow of $1.5 million for the next 10 years. The relevant discount rate is 10 percent. Cash flow occur at year-end.

After one year, the estimate of remaining annual cash flows will be revised wither upward to 2.75 million or downward to $345,000. Each revision has an equal probability of occurring.

At that time, the video game project can be sold for $3.1 million.

What is the revised NPV given that the firm can abandon the project after one year?

Reference no: EM131972182

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