Your Firm Is Considering a Project with a Five-Year Life

question 96

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 forecasts 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:

Declarative Memories

Memories that can be consciously recalled, such as facts and events.

Factual Memory

The capacity to recall information about facts and events from the past, often associated with explicit or declarative memory.

Semantic Networks

A concept in cognitive science that describes how knowledge is organized and interconnected in the brain based on meanings and semantically related ideas.

Conditioned Responses

Conditioned responses are learned reactions to a particular stimulus that result from conditioning, as seen in classical conditioning experiments.