Your ﬁrm is considering a project with a ﬁve-year life and an initial cost of $260,000. The discount rate for the project is 14 percent. The ﬁrm expects to sell 3,600 units a year. The cash ﬂow per unit
Is $30. The ﬁrm will have the option to abandon this project after three years at which time they
Expect they could sell the project for $150,000. 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
60/40 chance that the sales will be either 2,800 or 4,400 units a year, respectively. What is the net
Present value of this project given your sales forecasts?
A) $96,141
B) $114,715
C) $132,708
D) $141,414
E) $155,556

Question

Quizplus · Accepted Answer

The Answer of Your ﬁrm is considering a project with a ﬁve-year life and an initial cost of $260,000. The discount rate for the project is 14 percent. The ﬁrm expects to sell 3,600 units a year. The cash ﬂow per unit
Is $30. The ﬁrm will have the option to abandon this project after three years at which time they
Expect they could sell the project for $150,000. 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
60/40 chance that the sales will be either 2,800 or 4,400 units a year, respectively. What is the net
Present value of this project given your sales forecasts?
A) $96,141
B) $114,715
C) $132,708
D) $141,414
E) $155,556

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