Consider the following project for Hand Clapper, Inc. The company is considering a 4-year project to manufacture clap-command garage door openers. This project requires an initial investment of $16.7 million that will  be depreciated straight-line to zero over the project’s life. An initial investment in net working capital of $1,070,000 is required tosupport spare parts inventory; this cost is fully recoverable whenever the project ends. The company believes it can generate $14.3 million in revenues with $5.8 million in operating costs. The tax rate is 22 percent and the discount rate is 14 percent. Themarket value of the equipment over the life of the project is as follows:d. Compute the project NPV assuming the project is abandoned after only threeyears.Year: Market Value ($ millions)1: $ 14.702: $11.703: $9.204: $1.95

Question

Consider the following project for Hand Clapper, Inc. The company is considering a 4-year project to manufacture clap-command garage door openers. This project requires an initial investment of $16.7 million that will  be depreciated straight-line to zero over the project’s life. An initial investment in net working capital of $1,070,000 is required to
support spare parts inventory; this cost is fully recoverable whenever the project ends. The company believes it can generate $14.3 million in revenues with $5.8 million in operating costs. The tax rate is 22 percent and the discount rate is 14 percent. Themarket value of the equipment over the life of the project is as follows:
d. Compute the project NPV assuming the project is abandoned after only three
years.
Year: Market Value ($ millions)
1: $ 14.70
2: $11.70
3: $9.20
4: $1.95

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