Question
Hi I need a help in Finance. Your firm is considering a project with a five-year life and an initial cost of $260,000. The discount
Hi I need a help in Finance.
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.
a. At what level of sales should the firm be willing to abandon this project? (3 Points)
b. What is the net present value of this project given your sales forecasts? (3 Points)
c. What is the value of the option to abandon?
Can you advice with the steps....Thanks
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