The Nu-Tech Company Has a New Project Available to It

Essay

The Nu-Tech Company has a new project available to it at a cost of $6,000,000. If the project is accepted,the company will be able to sell 13,000 personal organizers at $172 in net cash flow for each of the next five years. Nu-Tech's discount rate is 15%. What is the NPV of the investment?
The executives of Nu-Tech are concerned about the potential of future competition and a subsequent drop in sales and price. If after two years you can dispose of the asset for $1,000,000 at what price would it make sense to abandon the project?
A._15,2 + $1,000,000 * (1/1.15)² + X (A._15,3)(1/1.15)²
X = $800,627.60; if they sell 13,000 units they should abandon the project if the price drops below $61.59 in years three and out.
A._15,5= $-6,000,000 + $7,495,418.80 = $1,495,418.80
Abandon: 0 = $-6,000,000 + $2,236,000 *