Question
In: Finance
We are examining a new project. We expect to sell 5,400 units per year at $68...
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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 $1,250,000. Suppose you think it is likely that expected sales will be revised upward to 8,400 units if the first year is a success and revised downward to 4,000 units if the first year is not a success. |
| a. |
If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV=$_________
Option Value= $_________ |
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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 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 revised...
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 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...
We are examining a new project. We expect to sell 5,800 units per year at $72...
We are examining a new project. We expect to sell 5,800 units
per year at $72 net cash flow apiece for the next 10 years. In
other words, the annual operating cash flow is projected to be $72
× 5,800 = $417,600. The relevant discount rate is 15 percent, and
the initial investment required is $1,690,000.
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....
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.
What is the
base-case NPV?
After the first year, the project can be dismantled and sold for
$1,600,000. If expected sales are revised based on...
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