Abandonment Decisions M.V.P. Games, Inc., has hired you to perform a feasibility study of a new video game that requires a $7 million initial investment. M.V.P. expects a total annual operating cash flow of $1.3 million for the next 10 years. The relevant discount rate is 10 percent. Cash flows occur at year-end.
a. What is the NPV of the new video game?
b. After one year, the estimate of remaining annual cash flows will be revised either upward to $2.2 million or downward to $285,000. Each revision has an equal probability of occurring. At that time, the video game project can be sold for $2.6 million. What is the revised NPV given that the firm can abandon the project after one year?
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.