Problem 24-14 Abandonment Value [LO5] We are examining a new project. We expect to sell 5,300 units per year at $67 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $67 × 5,300 = $355,100. The relevant discount rate is 16 percent, and the initial investment required is $1,520,000. X 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 $1,240,000. 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. Level of expected sales
Problem 24-14 Abandonment Value [LO5] We are examining a new project. We expect to sell 5,300 units per year at $67 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $67 × 5,300 = $355,100. The relevant discount rate is 16 percent, and the initial investment required is $1,520,000. X 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 $1,240,000. 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. Level of expected sales
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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![Problem 24-14 Abandonment Value [LO5]
We are examining a new project. We expect to sell 5,300 units per year at $67 net cash
flow apiece for the next 10 years. In other words, the annual cash flow is projected to be
$67 × 5,300 = $355,100. The relevant discount rate is 16 percent, and the initial
investment required is $1,520,000.
X
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 $1,240,000. 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. Level of expected sales](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff77bb421-9ef7-48b8-a6c8-edcb05ac4067%2Fc95e4847-3158-4b46-897c-510ecb168c47%2Fv7wo2gq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 24-14 Abandonment Value [LO5]
We are examining a new project. We expect to sell 5,300 units per year at $67 net cash
flow apiece for the next 10 years. In other words, the annual cash flow is projected to be
$67 × 5,300 = $355,100. The relevant discount rate is 16 percent, and the initial
investment required is $1,520,000.
X
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 $1,240,000. 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. Level of expected sales
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