Problem $7-28$ Abandonment Decisions

Consider the following project for Hand Clapper, Incorporated. The company is

considering a $4-$year project to manufacture clap$-$command garage door openers. This

project requires an initial investment of $$15\mathrm{.}9$ million that will be depreciated straight$-$line

to zero over the project's life. An initial investment in net working capital of $$990,000$ is

required to support spare parts inventory; this cost is fully recoverable whenever the

project ends. The company believes it can generate $$12\mathrm{.}7$ million in pretax revenues with

$$5$ million in pretax operating costs. The tax rate is $24$ percent and the discount rate is $12$

percent. The market value of the equipment over the life of the project is as follows:

a$.$ Assuming Hand Clapper operates this project for four years, what is the NPV$?($Do

not round intermediate calculations and enter your answer in dollars, not millions

of dollars, rounded to $2$ decimal places, e$.$g$.,1,234,567\mathrm{.}89.)$

b$-1.$ Compute the project NPV assuming the project is abandoned after only one year.

$($Do not round intermediate calculations and enter your answer in dollars, not

millions of dollars, rounded to $2$ decimal places, e$.$g$.,1,234,567\mathrm{.}89.)$

b$-2.$ Compute the project NPV assuming the project is abandoned after only two years.

$($Do not round intermediate calculations and enter your answer in dollars, not

millions of dollars, rounded to $2$ decimal places, e$.$g$.,1,234,567\mathrm{.}89.)$

b$-3.$ Compute the project NPV assuming the project is abandoned after only three years.

$($Do not round intermediate calculations and enter your answer in dollars, not

millions of dollars, rounded to $2$ decimal places, e$.$g$.,1,234,567\mathrm{.}89.)$