A new project is expected to produce sales of 4,800 units per year with a net cash flow of $53 each for the next 20 years. The discount rate is 16 percent and the initial investment is $1,625,000. After the first year, the project can be dismantled and sold for $1,475,000. After the first year, the project should be abandoned if annual sales are expected to be less than which number of units?

Question

Quizplus · Accepted Answer

The project should be abandoned if annual sales are expected to be less than 4,735 units. This is because the NPV of the project is negative if sales are less than 4,735 units.

A New Project Is Expected to Produce Sales of 4,800