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We are examining a new project. We expect to sell...

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We are examining a new project. We expect to sell 6,000 units per year at $44 net cash flow apiece for the next 15 years. In other words, the annual operating cash flow is projected to be $44 ? 6,000 = $264,000. The relevant discount rate is 20 percent, and the initial investment required is $1,130,000. Suppose you think it is likely that expected sales will be revised upward to 7,800 units if the first year is a success and revised downward to 3,000 units if the first year is not a success. The project can be dismantled after the first year and sold for $880,000. (a)If success and failure are equally likely, the NPV of the project is what? (b)The value of the option to abandon is what?,Both answers are incorrect

 

Paper#13033 | Written in 18-Jul-2015

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