We are examining a new project. We expect to sell 6,200 units
per year at $76 net cash flow apiece for the next 10 years. In
other words, the annual operating cash flow is projected to be $76
× 6,200 = $471,200. The relevant discount rate is 18 percent, and
the initial investment required is $1,730,000.
a. What is the base-case NPV? (Do not
round intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
NPV $
b. After the first year, the project can be
dismantled and sold for $1,600,000. If expected sales are revised
based on the first year’s performance, below what level of expected
sales would it make sense to abandon the project? (Do not
round intermediate calculations and round your answer to the
nearest whole number, e.g., 32.)
Level of expected sales
units
a. What is the base-case NPV?
=-1730000+471200/18%*(1-1/1.18^10)
=387613.4622
b. After the first year, the project can be dismantled and sold for $1,600,000. If expected sales are revised based on the first year’s performance, below what level of expected sales would it make sense to abandon the project?
x*76/18%*(1-1/1.18^9)<1600000
=>x<1600000*18%/76*1/(1-1/1.18^9)
=>x<4892.522609
4892 units
We are examining a new project. We expect to sell 6,200 units per year at $76 net cash flow apiece for the next 10 years...
We are examining a new project. We expect to sell 6,200 units per year at $76 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $76 x 6,200 = $471,200. The relevant discount rate is 18 percent, and the initial investment required is $1,730,000. After the first year, the project can be dismantled and sold for $1,600,000. Suppose you think it is likely that expected sales will be...
Problem 24-16 Abandonment and Expansion (LO5] We are examining a new project. We expect to sell 6,200 units per year at $76 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $76 x 6,200 = $471,200. The relevant discount rate is 18 percent, and the initial investment required is $1,730,000. After the first year, the project can be dismantled and sold for $1,600,000. Suppose you think it is likely...
We are examining a new project. We expect to sell 5,200 units per year at $66 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $66 * 5,200 = $343,200. The relevant discount rate is 17 percent and the initial investment required is $1,510,000. a. What is the base-case NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. After the...
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We are examining a new project. We expect to sell 5,100 units per year at $65 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $65 * 5,100 = $331,500. The relevant discount rate is 15 percent, and the initial investment required is $1,500,000. a. What is the base-case NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. After the first...
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Problem 24-14 Abandonment Value (LO5] We are examining a new project. We expect to sell 5,400 units per year at $68 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $68 x 5,400 = $367,200. The relevant discount rate is 18 percent, and the initial investment required is $1,530,000. a. What is the base-case NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g.,...