Crispy Corp. has a cost of capital of 6%. Management is considering a capital budgeting proposal that would require an initial investment of $1.7 million. Annual cash flows are forecast at $300,000 per year for 10 years with no salvage value. The $300,000 annual cash flow is actually a weighted average of $400,000 and 200,000 (depending on product acceptance by the market) and the cash flow for the life of the project will be known after one year of operation.
What is the NPV (in thousands of dollar) of undertaking project immediately if it includes an option to shut down after the first year for a salvage value of $1.7 million?
