We are examining a new project. We expect to sell 6, 100 units per year at $75 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $75 \times 6,100 = $457, 500. The relevant discount rate is 18 percent, and the initial investment required is $1,720,000. 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 year, the project can be dismantled and sold for $1,550,000. 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.)

We are examining a new project. We expect to sell 6, 100 units per year at $75 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $75 \times 6,100 = $457, 500. The relevant discount rate is 18 percent, and the initial investment required is $1,720,000. 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 year, the project can be dismantled and sold for $1,550,000. 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.)

Name: man.7 We are examining a new project. We expect to sell 6, 100 units p
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Description: man.7 We are examining a new project. We expect to sell 6, 100 units per year at $75 net cash flow apiece for thenext 10 years. In other words, the annual cash flow is projected to be $75 \times 6,100 = $457,500. Therelevant discount rate is 18 perce

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 4MC

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