Applied Nanotech is thinking about introducing a new surface-cleaning machine. The marketing department has estimated 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 estimated 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 unsuccessul, after the first year the project can be dismantled and will have an aftertax 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?