Aggarwal Enterprises Is Considering a New Project That Has a Cost

question 25

Multiple Choice

Aggarwal Enterprises is considering a new project that has a cost of $1,000,000, and the CFO set up the following simple decision tree to show its three most likely scenarios.The firm could arrange with its work force and suppliers to cease operations at the end of Year 1 should it choose to do so, but to obtain this abandonment option, it would have to make a payment to those parties.How much is the option to abandon worth to the firm?

• A)$55.08
• B)$57.98
• C)$61.03
• D)$64.08
• E)$67.29

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Definitions:

Credit Period

The duration during which a buyer can purchase goods or services on credit before payment is due to the seller, often expressed in days.

Percentage Cost

The cost expressed as a percentage of the purchase price or other value, often used to analyze and compare costs or expenses.

Default Rate

This is the rate at which borrowers fail to make payments on their debts, often expressed as a percentage.

Increase in Sales

A rise in the volume or value of products or services sold by a business, indicating potential growth or market expansion.