Your ﬁrm is considering a project with a ﬁve-year life and an initial cost of €120,000.The discount rate for the project is 12%.The ﬁrm expects to sell 2,100 units a year.The cash ﬂow per unit is €20.
The ﬁrm will have the option to abandon this project after three years at which time it expects it
Could sell the project for €50,000.You are interested in knowing how the project will perform if the
Sales forecast for years four and ﬁve of the project are revised such that there is a 50% chance that
The sales will be either 1,400 or 2,500 units a year.What is the net present value of this project
Given your sales forecasts?

Question

Quizplus · Accepted Answer

The Answer of Your ﬁrm is considering a project with a ﬁve-year life and an initial cost of €120,000.The discount rate for the project is 12%.The ﬁrm expects to sell 2,100 units a year.The cash ﬂow per unit is €20.
The ﬁrm will have the option to abandon this project after three years at which time it expects it
Could sell the project for €50,000.You are interested in knowing how the project will perform if the
Sales forecast for years four and ﬁve of the project are revised such that there is a 50% chance that
The sales will be either 1,400 or 2,500 units a year.What is the net present value of this project
Given your sales forecasts?

Your ﬁRm Is Considering a Project with a ﬁVe-Year Life