Rizzo's Is Considering a Project with a Life of 5

question 36

Multiple Choice

Rizzo's is considering a project with a life of 5 years and an initial cost of $131,000.The discount rate for the project is 14 percent.The firm expects to sell 2,100 units a year.The cash flow per unit is $23.The firm will have the option to abandon this project after 3 years at which time it expects it could sell the project for $49,000.At what level of sales should the firm be willing to abandon this project?

• A)1,087 units
• B)1,294 units
• C)1,479 units
• D)1,619 units
• E)1,502 units

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Definitions:

Capital Budgeting

The process of planning and evaluating investments in fixed assets and projects with long-term implications for the organization's financial health.

Long-Term Investments

Assets intended to be held for more than one year, such as stocks, bonds, or real estate, aimed at generating long-term returns.

Break-Even Time

The period required for an investment, project, or business to generate enough income to cover its initial cost, reaching a point where there are no net losses or gains.

Highest Rank

The top position or level in an organizational hierarchy or system.