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

question 52

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 percent.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 forecast 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:

Thought-Action Tendencies

The predispositions to behave or act in certain ways based on specific thought patterns.

Positive Thinking

The practice of focusing on the good in any given situation and maintaining a hopeful and optimistic outlook.

Emotion-Eliciting Tendencies

The predisposition of certain situations or stimuli to evoke specific emotional responses.

Neutral Emotional State

A condition where an individual feels neither positive nor negative emotions, often described as feeling emotionally flat or indifferent.