Brewster's Is Considering a Project with a Life of 5

question 60

Multiple Choice

Brewster's is considering a project with a life of 5 years 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 at a net cash flow per unit of $20.The firm will have the option to abandon this project after three years at which time it could sell the project for $50,000.The firm is interested in knowing how the project will perform if the sales forecasts for Years 4 and 5 of the project are revised such that there is a 50 percent chance the sales will be either 1,400 or 2,500 units a year.What is the net present value of this project given these revised sales forecasts?

• A)$23,617
• B)$23,719
• C)$25,002
• D)$26,877
• E)$28,745

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Definitions:

IPO Stage

The phase in which a private company becomes a public company by offering its shares to the public for the first time.

Maturity Stage

A phase in the life cycle of a product, business, or industry where growth stabilizes, and sales plateau, often leading to increased competition for market share.

Business Incubators

Entities structured to boost the development and prosperity of start-up businesses by offering a variety of business support tools and services.

Survival Rates

The percentage of individuals or entities that continue to exist after a certain period of time or through specific challenges.