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 15 units per year at $305,000 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 $15 million initial investment. The finance department has estimated that a 16 percent discount rate should be used.
A. What is the base-case NPV?
B. If unsuccessful, after the first year the project can be dismantled and will have an after tax salvage value of $11 million. Also, after the first year, expected Cash flows will be revised up to 20 units per year or to 0 units, with equal probability. What is the revised NPV?
Please show all workings.