Make sense to abandon the project

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Reference no: EM133976741

Question

Your company is evaluating a new project. It expects to sell 5,500 units per year at $69 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $69 × 5,500 = $379,500. The relevant discount rate is 17 percent, and the initial investment required is $1,540,000.

What is the base-case NPV?

At the end of the first year, the project can be dismantled and sold for $1,260,000. If expected sales are revised based on the first year's performance, below what level of expected sales would it make sense to abandon the project?

Reference no: EM133976741

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