a.
Adequate information:
Price per unit = $43
Quantity sold = 9,100 units
Discount rate (r) = 16%
Time period (t) = 9 years
Abandonment value = $810,000
Probability of failure of the project = 0.50
Operating cash flow (OCF) = $279,500
Cost of the project (C) = $980,000
To determine: The
Introduction: NPV refers to the difference between the aggregate value of
b.
Adequate information:
Price per unit = $43
Quantity sold = 3,700 units
Discount rate = 16%
Time period = 9 years
Abandonment value = $810,000
Probability of failure of the project = 0.50
To determine: Value of the option to abandon
Introduction: Present value refers to the discounted value of future cash flows in which discounting rate and time period are known.
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