Margerit Is Reviewing a Project with Projected Sales of 1,500

question 24

Multiple Choice

Margerit is reviewing a project with projected sales of 1,500 units a year,a cash flow of $40 a unit and a three-year project life.The initial cost of the project is $95,000.The relevant discount rate is 15 percent.Margerit has the option to abandon the project after one year at which time she feels she could sell the project for $70,000.At what level of sales should she be willing to abandon the project?

• A)899 units
• B)923 units
• C)967 units
• D)1,077 units
• E)1,206 units

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Definitions:

Central Bank

The primary monetary authority of a country, responsible for regulating the financial system, issuing currency, and controlling inflation and interest rates.

Lender of Last Resort

An institution, usually a central bank, that offers loans to banks or financial institutions that are struggling financially or are considered highly illiquid.

Financial Panics

Instances of widespread fear and anxiety among investors and the general public leading to rapid withdraws from banks or sell-offs in markets, often triggering economic downturns.

Open Market

A freely competitive market in which any buyer or seller can participate, and prices are determined by supply and demand.