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? Question 48 options: $141,414 $132,708 $114,715 $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? Question 48 options: $141,414 $132,708 $114,715 $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
Related questions
Question
![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? Question 48 options:
$141,414 $132,708 $114,715 $155,556
$96,141](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F89334573-8ad5-4e81-b014-fdfd29bae38c%2Fa7b0255d-f5f0-409c-ab4d-1f924f3d1cfe%2Fi9jvk5s_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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? Question 48 options:
$141,414 $132,708 $114,715 $155,556
$96,141
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