Abandon the project-the introduction of weight loss

Assignment Help Financial Management

Reference no: EM131339657

SSC is considering another project: the introduction of a "weight loss" smoothie. The project would require a $3.2 million investment outlay today (t = 0). The after-tax cash flows would depend on whether the weight loss smoothie is well received by consumers. There is a 40% chance that demand will be good, in which case the project will produce after-tax cash flows of $2.3 million at the end of each of the next 3 years. There is a 60% chance that demand will be poor, in which case the after-tax cash flows will be $0.49 million for 3 years. The project is riskier than the firm's other projects, so it has a WACC of 11%. The firm will know if the project is successful after receiving the cash flows the first year, and after receiving the first year's cash flows it will have the option to abandon the project. If the firm decides to abandon the project the company will not receive any cash flows after t = 1, but it will be able to sell the assets related to the project for $2.25 million after taxes at t = 1. Assuming the company has an option to abandon the project, what is the expected NPV of the project today? Round your answer to 2 decimal places. Do not round your intermediate calculations. Use the values in "millions of dollars" to ascertain the answer.

$ millions of dollars

Reference no: EM131339657

Questions Cloud

Calculate the amount of interest and principal paid : You plan to purchase a $230,000 house using a 15-year mortgage obtained from Ing Direct.. The mortgage rate offered to you is 3.25%. You will make a down payment of 25% of the purchase price. Calculate your monthly payments on this mortgage. Calculat..

Unbiased expectations theory-calculate current rates : Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities.

What would be the new value of your bond portfolio : You own a bond portfolio worth $88,330.You estimate that your portfolio has an average yield-to-maturity of 5.1% and Macaulay Duration of 3.3 years. If interest rates went down one percentage point and your portfolio's yield-to-maturity changed by th..

The value of the firm be if company takes on debt equal : Jet Corporation expects an EBIT of $29,550 every year forever. The company currently has no debt, and its cost of equity is 11 percent. The corporate tax rate is 35 percent. What is the current value of the company? Suppose the company can borrow at ..

Abandon the project-the introduction of weight loss : SSC is considering another project: the introduction of a "weight loss" smoothie. The project would require a $3.2 million investment outlay today (t = 0). The after-tax cash flows would depend on whether the weight loss smoothie is well received by ..

Dividend is expected to grow at constant rate : GM is expected to pay a $3.00 per-share dividend at the end of the year (D1 = $3.00). The stock sells for $150 per share and its required rate of return is 14 percent. The dividend is expected to grow at a constant rate, g, forever. What is the growt..

Involve real impact on the cash flows of business : In many business decision scenarios, managers faces the dilemma, for example, whether to continue the project or to abandon it, whether to finance a project with debt or equity, etc. How can we apply the knowledge of traditional option pricing techni..

What is the real risk-free rate of return on apple bonds : You are considering an investment in 30-year bonds issued by Apple. One-year T-bills are currently earning 2.2% and inflation has been 1.5%. Bloomberg Finance shows the current information for Apple bonds: What is the real risk-free rate of return on..

How much money will be in account after you made payment : You plan to buy a house in 8 years. You want to save money for a down payment on the new house. You are able to place $183 every month at the end of the month into a savings account at an annual rate of 9.39 percent, compounded monthly. How much mone..

User Account

All Pages