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. $114,715 B. $132,708 C. $141,414 D. $155,556
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. $114,715 B. $132,708 C. $141,414 D. $155,556
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter14: Real Options
Section: Chapter Questions
Problem 4MC
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. 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. $114,715
B. $132,708
C. $141,414
D. $155,556
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