We are examining a new project. We expect to sell 5,400 units per year at $68...

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We are examining a new project. We expect to sell 5,400 unitsper year at $68 net cash flow apiece for the next 10 years. Inother words, the annual cash flow is projected to be $68 × 5,400 =$367,200. The relevant discount rate is 18 percent, and the initialinvestment required is $1,530,000. After the first year, theproject can be dismantled and sold for $1,250,000. Suppose youthink it is likely that expected sales will be revised upward to8,400 units if the first year is a success and revised downward to4,000 units if the first year is not a success.
a. If success and failure are equally likely, what is the NPV ofthe project? Consider the possibility of abandonment in answering.(Do not round intermediate calculations and round your answer to 2decimal places. e.g., 32.16.)
b. What is the value of the option to abandon? (Do not roundintermediate calculations and round your answer to 2 decimalplaces. e.g., 32.16.)

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We are examining a new project. We expect to sell 5,400 unitsper year at $68 net cash flow apiece for the next 10 years. Inother words, the annual cash flow is projected to be $68 × 5,400 =$367,200. The relevant discount rate is 18 percent, and the initialinvestment required is $1,530,000. After the first year, theproject can be dismantled and sold for $1,250,000. Suppose youthink it is likely that expected sales will be revised upward to8,400 units if the first year is a success and revised downward to4,000 units if the first year is not a success.a. If success and failure are equally likely, what is the NPV ofthe project? Consider the possibility of abandonment in answering.(Do not round intermediate calculations and round your answer to 2decimal places. e.g., 32.16.)b. What is the value of the option to abandon? (Do not roundintermediate calculations and round your answer to 2 decimalplaces. e.g., 32.16.)