Dressler Technologies Is Considering a Project with a 3-Year Life

question 84

Multiple Choice

Dressler Technologies is considering a project with a 3-year life and an initial cost of $87,000.The discount rate for the project is 14.5 percent.The firm expects to sell 1,300 units on the last day of each year.The cash flow per unit is $32.The firm will have the option to abandon this project at the end two years (after year 2 sales) at which time the project's assets could be sold for an estimated $30,000.The firm's managers are interested in knowing how the project will perform if the sales forecast for year 3 of the project is revised such that there is a 50/50 chance that the sales will be either 1,000 or 1,400 units a year.What is the net present value of this project at time zero given the current sales forecasts?

• A)-$3,474
• B)-$2,526
• C)$7,426
• D)$8,192
• E)$8,887

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Definitions:

Self-reliance

The ability to rely on one's own capabilities, resources, and judgments.

Status Quo

The existing state of affairs, particularly in terms of social or political issues.

Opportunity-driven

Entrepreneurship or actions motivated by the identification and exploitation of business opportunities.

Troika

Originally a Russian term for a sled or carriage drawn by three horses, now often used metaphorically to refer to a group of three powerful or notable people or entities.