We Are Examining a New Project

question 34

Multiple Choice

We are examining a new project.We expect to sell 9,500 units per year at $48 net cash flow apiece for the next 20 years.In other words,the annual operating cash flow is projected to be $45 × 9,000 = $405,000.The relevant discount rate is 14 percent,and the initial investment required is $1,730,000.After the first year,the project can be dismantled and sold for $1,350,000.If expected sales are revised based on the first year's performance,it would make sense to abandon the investment if the sales are less than which of the following number of units?

• A)4,294 units
• B)4,620 units
• C)4,750 units
• D)4,810 units
• E)5,020 units

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Definitions:

Ratio Scale

A measurement scale that possesses a meaningful zero value and allows for comparison of differences and ratios between measurement units.

Interval Scale

A type of scale used for measurement where intervals between values are meaningful and equally spaced, but there is no true zero.

Frequency Polygon

A graphical representation of the distribution of a dataset that shows how often each value occurs, using a line that connects points representative of each frequency.

Nominal Scale

A measurement scale used in research that categorizes data without natural order or ranking.