Question
Your firm is considering a project with a 5 year life and an initial cost of $260,000. The discount rate for the project is 14%.
Your firm is considering a project with a 5 year life and an initial cost of $260,000. The discount rate for the project is 14%. The firm expects to sell 3600 units a year. The cashflow per unit is $30. The firm will have the option to abandon this project after 3 years at which time they expect they could sell the project for $150000. You are interested in knowing how the project will perform if the sales forecast for years 4 & 5 of the project are revised such that there is a 60/40 chance that the sales will be either 2800 or 4400 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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