# We are examining a new project

 We are examining a new project. We expect to sell 6,500 units per year at \$43 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be \$43 × 6,500 = \$279,500. The relevant discount rate is 16 percent, and the initial investment required is \$980,000. After the first year, the project can be dismantled and sold for \$810,000. Suppose you think it is likely that expected sales will be revised upward to 9,100 units if the first year is a success and revised downward to 3,700 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.)
 b. What is the value of the option to abandon?

# We are examining a new project

 We are examining a new project. We expect to sell 6,500 units per year at \$43 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be \$43 × 6,500 = \$279,500. The relevant discount rate is 16 percent and the initial investment required is \$980,000.

 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 \$810,000. 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?

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