A Proposed 4-Year Project Has an Initial Cost of $236,000

question 38

Multiple Choice

A proposed 4-year project has an initial cost of $236,000, projected sales of 4,500 units a year, a cash flow of $32 a unit, and a discount rate of 11 percent. Assume all operating cash flows occur on the last day of each year. If the project is abandoned after two years, the project's assets can be sold for $150,000. Below what level of annual sales, starting in Year 3, should the project be abandoned?

• A) 3,119 units
• B) 2,737 units
• C) 4,067 units
• D) 3,516 units
• E) 3,067 units

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Definitions:

Economies of Scale

Enterprises gain financial benefits from their size of operations, usually experiencing a reduction in the cost per unit produced as the scale of the operation grows.

Push Strategy

A marketing approach that involves taking the product directly to the customer through whatever means to ensure the customer is aware of the existence of the product.

Logistics Operations

The planning, implementation, and control of the movement and storage of goods, services, or information within a supply chain.

Push-Pull Supply Chain Strategy

A hybrid supply chain model combining the push system (producing goods in anticipation of customer demand) and the pull system (producing goods in response to actual customer demand).