(Abandonment Option) Hit or Miss Sports Is Introducing a New

Essay

(Abandonment Option) Hit or Miss Sports is introducing a new product this year.If its "see-at-night" soccer balls are a hit, the firm expects to be able to sell 50,000 units a year at a price of $60 each.If the new product is a bust, only 30,000 units can be sold at a price of $55.The variable cost of each ball is $30, and fixed costs are zero.The cost of the manufacturing equipment is $6 million, and the project life is estimated at 10 years.The firm will use straight-line depreciation over the 10-year life of the project.The firm's tax rate is 35 percent and the discount rate is 12 percent.