Applied Nanotech is thinking about introducing a new surface cleaning machine. T

Question

Applied Nanotech is thinking about introducing a new surface cleaning machine. The marketing department has come up with the estimate that Applied Nanotech can sell 14 units per year at $296,000 net cash flow per unit for the next five years. The engineering department has come up with the estimate that developing the machine will take a $13.6 million initial investment. The finance department has estimated that a 16 percent discount rate should be used.

What is the base-case NPV? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

If unsuccessful, after the first year the project can be dismantled and will have an aftertax salvage value of $10.1 million. Also, after the first year, expected cash flows will be revised up to 19 units per year or to 0 units, with equal probability. What is the revised NPV? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  Revised NPV

I already know that part A is -31,327.10. I just can't seem to figure out part B. Thanks!

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Applied Nanotech is thinking about introducing a new surface cleaning machine. The marketing department has come up with the estimate that Applied Nanotech can sell 14 units per year at $296,000 net cash flow per unit for the next five years. The engineering department has come up with the estimate that developing the machine will take a $13.6 million initial investment. The finance department has estimated that a 16 percent discount rate should be used.

Explanation / Answer

Part B Cash Flow per Unit = $ 296000 For 19 Units = 296000*19 = 5624000 5624000*50% = 2812000 Outflow = 13600000 NPV = Cash Inflow- Cash Outflow NPv = 2812000*.862+10100000*.862-13600000 NPV = 2424138+870690-13600000 Npv = - $ 489310

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