2 Question 1 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 X 6500= $279,500. The relevant discount rate is 16 percent and the initial investment required is $980,000 Not yet answered Finish attempt... Not graded a. What is the base-case NPV? P Flag question 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, when would it make sense to abandon the investment? In other words, at what level of expected sales would it make sense to abandon the project? C. Explain how the $810,000 abandonment value can be viewed as the opportunity cost of keeping the project in one year. d. 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. If success and failure are equally likely, calculate: (i) the NPV of the project? Consider the possibility of abandonment in answering. (ii) the value of the option to abandon? 2 Question 1 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 X 6500= $279,500. The relevant discount rate is 16 percent and the initial investment required is $980,000 Not yet answered Finish attempt... Not graded a. What is the base-case NPV? P Flag question 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, when would it make sense to abandon the investment? In other words, at what level of expected sales would it make sense to abandon the project? C. Explain how the $810,000 abandonment value can be viewed as the opportunity cost of keeping the project in one year. d. 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. If success and failure are equally likely, calculate: (i) the NPV of the project? Consider the possibility of abandonment in answering. (ii) the value of the option to abandon