Question

Applied Nanotech is thinking about introducing a new surface cleaning machine. The marketing department has come up with the estimate that the company can sell 15 units per year at $308,000 net cash flow per unit for the next five years. The engineering department has come up with the estimate that developing the machine will take a $15.2 million initial investment. The finance department has estimated that a discount rate of 16 percent should be used. a. What is the base-case NPV? (Enter your answer in dollars, not millions of dollars. A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 1,234,567.89.) Base-case NPV $ b. If unsuccessful, after the first year the project can be dismantled and will have an aftertax salvage value of $11.3 million. Also, after the first year, expected cash flows will be revised up to 20 units per year or to 0 units, with equal probability. What is the revised NPV? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 1,234,567.89.) Revised NPV $

Answer 1