What level of expected cash flows does make sense to abandon

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Reference no: EM131050893

Allied Products, Inc., is considering a new product launch. The firm expects to have annual operating cash flow of $6.9 million for the next 8 years. Allied Products uses a discount rate of 11 percent for new product launches. The initial investment is $32 million. Assume that the project has no salvage value at the end of its economic life.

What is the NPV of the new product?

After the first year, the product can be dismantled and sold for $21 million after taxes. If the estimates of remaining cash flows are revised based on the first years experience, at what level of expected cash flows does it make sense to abandon the project?

Reference no: EM131050893

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