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You are considering whether to start a new 5-year project. The project requires the purchase of $250 of equipment that will be depreciated using straight-line
You are considering whether to start a new 5-year project. The project requires the purchase of $250 of equipment that will be depreciated using straight-line depreciation to a zero book value over the project's life. The equipment can be sold in year 5 for a value of $25. The price of each unit is $2 and the unit cost of production is $1. The tax rate is 34%. The units sold and the required rate of return will depend on the conditions of the economy. In Scenario 1 (Boom), you sell 100 units per year and the required rate of return is 10%. In Scenario 2 (Recession), you sell only 40 units per year and the required rate of return is 20%. What is the minimum probability of Scenario 1 occuring for which you should undertake the project?
66.34%
45.27%
54.3%
73.43%
60.26%
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