Question

Halloween, Inc., is considering a new product launch. The firm expects to have an annual operating cash flow of $8.4 million for the next 8 years. The discount rate for this project is 12 percent for new product launches. The initial investment is $38.4 million. Assume that the project has no salvage value at the end of its economic life. a. What is the NPV of the new product? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. After the first year, the project can be dismantled and sold for $25.4 million. If the estimates of remaining cash flows are revised based on the first year's experience, at what level of expected cash flows does it make sense to abandon the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Answer is complete but not entirely correct. $ NPV Annual cash flows 3,328,174.00 17,608,000,00 %

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

PE EPS, STOCK DIVIDEND - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Σ AutoSum : A 11 A A = = = General V E E Wrap Text Merge & Center U D- -A E $ % &.. Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill 2 Clear Sort & Filter Editing Find & Select Alignment Number Cells Calibri E Copy Paste Format Painter B I Clipboard PK32 PF PG 17 18 Font fax PH P L PJ I PK PL PM PN PO PP PQ PR PS PTE 19 20 21 22. 23 24 NPV = NPV = NPV = NPV = PV OF ALL CASH FLOWS - INITIAL INVESTMENT 8400000 X PVIFA @ 12%, 8 YEARS - 38400000 8400000 X 4.9676398 - 38400000 3328174.04 PVIFA PVIFA @12%, 8 YEARS (1/r)(1-(1/(1+r)^n)) (1/0.12)(1-(1/(1+0.12)^8)) 4.9676398 25 26 THE COMPANY WILL ABANDON THE PROJECT IF PV OF REVISED CASH FLOWS FOR NEXT 8 YEARS IS LESS THAN THE PROJECT'S AFTER TAX SALVAGE VALUE ABANDON WILL HAPPEN IN YEAR 1 AFTER TAX SALVAGE VALUE = EXPECTED CASH FLOW X PVIFA @12%, 7 YEARS 25400000 = EXPECTED CASH FLOW X 4.5637565 EXPECTED CASH FLOW = 5565590.49 27 28 29 30 31 32 33 34 PVIFA PVIFA @ 12%, 7 YEARS (1/r)(1-(1/(1+r)^n)) (1/0.12)(1-(1/(1+0.12)^7)) 4.5637565 35 36 37 WIN Rea EV PE EPS DIV ABNORMAL deberk MARGIN MONEY marginal tax PB ROPI APV ROSS price quote EVA MVA STOCK DIV NAV HEDGE FUND ME ferences: AL125 LEVERAGED BUY B0 9 SWAI 120% 0 + 07:56 * * *O ENG 08-11-2019 6. B