You are also considering another project which has a physical life of 3 years that is, the machinery will be totally worn out after 3 years However, if the project were terminated prior to the end of 3 years, the machinery would have a positive salvage value Here are the project's estimated cash flows Yr CF Salvage 0 ($85,000) $85,000 1 42,500 48,000 2 55,100 19,000 3 57,000 0 Using the 9 cost of capital, what is the project's NPV if it is operated for the full 3 years Would the NPV change if the company planned to terminate the project at the end of Year 2 At the end of Year 1 What is the project's optimal (economic) life

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Question: You are also considering another project which has a physical life of 3 years; that is, the machinery will be totally worn out after 3

You are also considering another project which has a physical life of 3 years; that is, the machinery will be totally worn out after 3 years.However, if the project were terminated prior to the end of 3 years, the machinery would have a positive salvage value.Here are the project's estimated cash flows:

Salvage

($85,000)

$85,000

42,500

48,000

55,100

19,000

57,000

Using the 9% cost of capital, what is the project's NPV if it is operated for the full 3 years?Would the NPV change if the company planned to terminate the project at the end of Year 2?At the end of Year 1?What is the project's optimal (economic) life?

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