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 $302,000 net cash flow per unit for the next four years. The engineering department has come up with the estimate that developing the machine will take a $13.5 million initial investment. The finance department has estimated that a discount rate of 10 percent should be used.

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

Base-case NPV

$

b.

If unsuccessful, after the first year the project can be dismantled and will have an aftertax salvage value of $10.7 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, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Revised NPV

$

I posted this question previously but it was answered incorrectly. So I know the answers are not $20,102 and 1,741,161.61.

Answer 1

I can give you answer for Question A.

Question A

NPV = Sum of present value of cash flows generated by the projects

Annual cash flow = no of units sold * cash flow per unit

=14(302000)

=4228000

Cash flows from this project are an annuity so NPV is

=-13500000+4228000(PVIFA10%,4) = 29391312.8

PVIFA 10 % for 4 years is 3.1699 (ref PVIFA table attached below)

PVIFA Table

Periods	1%	2%	3%	4%	5%	6%	7%	8%	9%	10%
1	0.9901	0.9804	0.9709	0.9615	0.9524	0.9434	0.9346	0.9259	0.9174	0.9091
2	1.9704	1.9416	1.9135	1.8861	1.8594	1.8334	1.808	1.7833	1.7591	1.7355
3	2.941	2.8839	2.8286	2.7751	2.7232	2.673	2.6243	2.5771	2.5313	2.4869
4	3.902	3.8077	3.7171	3.6299	3.546	3.4651	3.3872	3.3121	3.2397	3.1699