Allied Products, Inc., is considering a new product launch. The firm expects to have annual operating cash flow of $9.2 million for the next 8 years. Allied Products uses a discount rate of 13 percent for new product launches. The initial investment is $39.2 million. Assume that the project has no salvage value at the end of its economic life.
a. What is the NPV of the new product? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to 2 decimal places, e.g., 32.16.)
NPV $
b. After the first year, the project can be dismantled and sold for $26.2 million. If the estimates of remaining cash flows are revised based on the first yearâs experience, at what level of expected cash flows does it make sense to abandon the project? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to 2 decimal places, e.g., 32.16.)
Annual cash flows $
Allied Products, Inc., is considering a new product launch. The firm expects to have annual operating cash flow of $9.2 million for the next 8 years. Allied Products uses a discount rate of 13 percent for new product launches. The initial investment is $39.2 million. Assume that the project has no salvage value at the end of its economic life.
a. What is the NPV of the new product? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to 2 decimal places, e.g., 32.16.)
NPV $
b. After the first year, the project can be dismantled and sold for $26.2 million. If the estimates of remaining cash flows are revised based on the first yearâs experience, at what level of expected cash flows does it make sense to abandon the project? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to 2 decimal places, e.g., 32.16.)
Annual cash flows $
Related questions
| Applied Nanotech is thinking about introducing a new surface cleaning machine. The marketing department has come up with the estimate that Applied Nanotech can sell 14 units per year at $296,000 net cash flow per unit for the next five years. The engineering department has come up with the estimate that developing the machine will take a $13.6 million initial investment. The finance department has estimated that a 16 percent discount rate should be used. |
| a. | What is the base-case NPV? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Base-case NPV | $ |
| b. | If unsuccessful, after the first year the project can be dismantled and will have an aftertax salvage value of $10.1 million. Also, after the first year, expected cash flows will be revised up to 19 units per year or to 0 units, with equal probability. What is the revised NPV? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Revised NPV | $ |
| Applied Nanotech is thinking about introducing a new surface cleaning machine. The marketing department has come up with the estimate that Applied Nanotech can sell 14 units per year at $296,000 net cash flow per unit for the next five years. The engineering department has come up with the estimate that developing the machine will take a $13.6 million initial investment. The finance department has estimated that a 16 percent discount rate should be used. |
| a. | What is the base-case NPV? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Base-case NPV | $ |
| b. | If unsuccessful, after the first year the project can be dismantled and will have an aftertax salvage value of $10.1 million. Also, after the first year, expected cash flows will be revised up to 19 units per year or to 0 units, with equal probability. What is the revised NPV? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Revised NPV I already know that part A is -31,327.10. I just can't seem to figure out part B. Thanks! | $ |
