Isabelle is reviewing a project with projected sales of 1,500 units a year,a cash flow of $40 a unit and a 3-year project life.The initial cost of the project is $95,000.The relevant discount rate is 15 percent.She has the option to abandon the project after one year at which time she feels she could sell the project for $60,000.At what level of sales should she be willing to abandon the project?

Question

Quizplus · Accepted Answer

NPV₁ = $60,000 = (Q × $40)[(1 - 1/1.15^{(3 - 1)})/.15]Q = 922.67 units

Isabelle Is Reviewing a Project with Projected Sales of 1,500