Question
In: Finance
Problem 7-17 Abandonment Value We are examining a new project. We expect to sell 5,600 units...
Problem 7-17 Abandonment Value
We are examining a new project. We expect to sell 5,600 units per year at $70 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $70 × 5,600 = $392,000. The relevant discount rate is 18 percent and the initial investment required is $1,550,000. 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 $1,270,000. 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.)
Solutions
jeff jeffy answered 2 hours agoRelated Solutions
[Abandonment] We are examining a new project. We expect to sell 7,100 units per year at...
[Abandonment] We are examining a new project. We expect to sell
7,100 units per year at $56 net cash flow apiece for the next 10
years. In other words, the annual cash flow is projected to be
$56*7,100=$397,600. The relevant discount rate is 14%, and the
initial investment required is $1,800,000. Suppose you think it is
likely that expected sales will be revised upward to 10,800 units
if the first year is a success and revised downward to 3,900 units...
We are examining a new project. We expect to sell 5,600 units per year at $70...
We are examining a new project. We expect to sell 5,600 units
per year at $70 net cash flow apiece for the next 10 years. In
other words, the annual operating cash flow is projected to be $70
× 5,600 = $392,000. The relevant discount rate is 18 percent, and
the initial investment required is $1,550,000. After the first
year, the project can be dismantled and sold for $1,270,000.
Suppose you think it is likely that expected sales will be...
We are examining a new project. We expect to sell 5,500 units per year at $69...
We are examining a new project. We expect to sell 5,500 units
per year at $69 net cash flow apiece for the next 10 years. In
other words, the annual operating cash flow is projected to be $69
× 5,500 = $379,500. The relevant discount rate is 19 percent, and
the initial investment required is $1,540,000. After the first
year, the project can be dismantled and sold for $1,260,000.
Suppose you think it is likely that expected sales will be...
We are examining a new project. We expect to sell 7,100 units per year at $56...
We are examining a new project. We expect to sell 7,100 units
per year at $56 net cash flow apiece for the next 10 years. In
other words, the annual cash flow is projected to be
$56*7,100=$397,600. The relevant discount rate is 14%, and the
initial investment required is $1,800,000. Suppose you think it is
likely that expected sales will be revised upward to 10,800 units
if the first year is a success and revised downward to 3,900 units
if...
We are examining a new project. We expect to sell 6,200 units per year at $76...
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 × 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 revised...
We are examining a new project. We expect to sell 5,400 units per year at $68...
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 operating cash flow is projected to be $68
× 5,400 = $367,200. The relevant discount rate is 18 percent, and
the initial investment required is $1,530,000. After the first
year, the project can be dismantled and sold for $1,250,000.
Suppose you think it is likely that expected sales will be...
We are examining a new project. We expect to sell 6,600 units per year at $60...
We are examining a new project. We expect to sell 6,600 units
per year at $60 net cash flow apiece for the next 10 years. In
other words, the annual operating cash flow is projected to be $60
× 6,600 = $396,000. The relevant discount rate is 14 percent, and
the initial investment required is $1,770,000. 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...
We are examining a new project. We expect to sell 6,600 units per year at $60...
We are examining a new project. We expect to sell 6,600 units
per year at $60 net cash flow apiece for the next 10 years. In
other words, the annual cash flow is projected to be $60 × 6,600 =
$396,000. The relevant discount rate is 14 percent, and the initial
investment required is $1,770,000. After the first year, the
project can be dismantled and sold for $1,640,000. Suppose you
think it is likely that expected sales will be revised...
We are examining a new project. We expect to sell 5,200 units per year at $66...
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. After the first
year, the project can be dismantled and sold for $1,230,000.
Suppose you think it is likely that expected sales will be...
We are examining a new project. We expect to sell 6,400 units per year at $58...
We are examining a new project. We expect to sell 6,400 units
per year at $58 net cash flow apiece for the next 10 years. In
other words, the annual operating cash flow is projected to be $58
× 6,400 = $371,200. The relevant discount rate is 12 percent, and
the initial investment required is $1,750,000. After the first
year, the project can be dismantled and sold for $1,620,000.
Suppose you think it is likely that expected sales will be...
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