Denver Mart Is Considering a Project with a Life of 5

question 12

Multiple Choice

Denver Mart is considering a project with a life of 5 years and an initial cost of $136,000.The discount rate is 11 percent.The firm expects to sell 2,200 units a year with a cash flow per unit of $26.The firm will have the option to abandon this project after 3 years at which time it expects it could sell the project for $48,000.The firm is interested in knowing how the project will perform if the sales forecast for Years 4 and 5 of the project are revised such that there is a probability of 50 percent that the sales will be 1,000 units and a probability of 50 percent they will be 2,500 units a year.What is the net present value of this project given your sales forecasts?

• A)$23,617
• B)-$43,719
• C)$55,002
• D)$6,877
• E)$62,025

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Definitions:

Bacteria

Microscopic single-celled organisms that can be found everywhere and are vital for the environment, but some can cause diseases in humans, animals, and plants.

Antiseptic

Substances used on the skin to inhibit the growth of bacteria, preventing infections.

Medical Asepsis

Involves practices such as hand washing and sanitization that reduce the number and transfer of pathogens.

Proper Hand Washing

A hygiene practice involving the thorough cleaning of hands with soap and water to remove dirt, germs, and microorganisms, preventing disease transmission.