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

question 144

Multiple Choice

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. What is the net
Present value of this project given your sales forecasts?

• A) $96,141
• B) $114,715
• C) $132,708
• D) $141,414
• E) $155,556

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Definitions:

Nurses' Health Study

A long-term research project investigating the factors that influence women's health.

Correlational Research

A scientific research methodology that examines the relationship between two or more variables to determine if a correlation exists.

Causal Research

A type of investigation aimed at determining cause-and-effect relationships.

Power Analysis

A statistical method used to determine the smallest sample size needed to detect an effect of a given size with a certain degree of confidence.