Question: ABC Sporting Goods is examining a project to produce a new line of tennis rackets. The project is expected to sell 7000 units per year

ABC Sporting Goods is examining a project to produce a new line of tennis rackets. The

project is expected to sell 7000 units per year with a net cash flow of $60 per unit. The

project will run for 10 years, the discount rate is 16%, and an initial investment of $2.1

million is required. The project has no salvage value at the end of 10 years. Ignore taxes.

(a) What is the base case NPV?

(b) Now, suppose that at the end of the first year, the project can be dismantled and sold

for $1.4 million. At what level of sales would it make sense to abandon the project?

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