Patience Is Reviewing a Project with Projected Sales of 4,200

question 59

Multiple Choice

Patience is reviewing a project with projected sales of 4,200 units a year,a cash flow of $28 a unit,and a four-year project life.Assume all operating cash flows occur on the last day of each year.The initial cost of the project is $247,000.The relevant discount rate is 13 percent.Patience has the option to abandon the project after two years at which time she feels she could sell the project's assets for $110,000.At what level of annual sales,starting in year 3,should she be willing to abandon this project?

• A)2,119 units
• B)2,355 units
• C)2,367 units
• D)2,516 units
• E)2,667 units

---

Definitions:

Other Receivable

Amounts owed to a company by entities other than customers, such as tax refunds, advances to employees, or other companies.

Employee Advance

A prepayment to employees by a company, often covering travel expenses or payment before the regular payroll date.

Notes Receivable

Claims held by a party for payments due from debtors, usually evidenced by a formal instrument of indebtedness such as a promissory note.

Allowance Method

An accounting approach to managing bad debts by estimating and recording uncollectable accounts receivable as an expense before the debts are known to be uncollectable.