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. b. What is the base-case NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 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.) a. NPV b. Minimum level of expected sales units
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. b. What is the base-case NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 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.) a. NPV b. Minimum level of expected sales units
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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.
b.
What is the base-case NPV? (Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.)
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.)
a.
NPV
b.
Minimum level of expected sales
units
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