Your fiRm Is Considering a Project with a fiVe-Year Life

question 56

Multiple Choice

Your firm is considering a project with a five-year life and an initial cost of €120,000.The discount rate for the project is 12%.The firm expects to sell 2,100 units a year.The cash flow per unit is €20.
The firm will have the option to abandon this project after three years at which time it expects it
Could sell the project for €50,000.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 50% chance that
The sales will be either 1,400 or 2,500 units a year.What is the net present value of this project
Given your sales forecasts?

• A)€23,617
• B)€23,719
• C)€25,002
• D)€26,877
• E)€28,746

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Definitions:

Observation

involves systematically capturing or recording behavior, phenomena, or events as they naturally occur, without manipulation by the observer.

Treatment

In research, an intervention or condition that is applied to a group of subjects to observe its effects, often compared to a control group without the intervention.

Extended Period

A length of time that is longer than average or expected, often used in the context of research to indicate the duration of a study or observation.

Independent Variable

A factor in scientific research that is intentionally changed to examine its impact on a dependent outcome.