A company is considering a project with the following characteristics:

The initial outlay is $200,000.

The project life is four years.

The annual after-tax operating cash flows have a 50% probability of being $30,000 per year (failure) and a 50% probability of being $90,000 per year (success).

At the end of the first year, all parties will find out whether project X is a success or a failure.

The salvage value at termination is zero, and the required rate of return is 12%.

The company has the option of abandoning the project after two years, at which point it would have a salvage value of $150,000. 

What's the expected NPV for the project considering the abandonment strategy?

Answer rating: 100% (QA)

To calculate the expected net present value NPV of the project considering the abandonment strategy ... View the full answer