A Software Firm Is Considering Developing a New Financial Planning

question 30

Multiple Choice

A software firm is considering developing a new financial planning software package.This new project is expected to sell 5,000 units per year and generate net operating cash flow of $100 per unit for the next five years.The relevant discount rate is 15 percent and the initial investment is $1.25 million.At what annual level of sales would it make sense to abandon the project if the project can be sold for $150,000 after the first year? Ignore taxes.

• A) Less than 447 units
• B) Less than 525 units
• C) More than 3,340 units
• D) Less than 3,729 units

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Definitions:

Shareholders

Individuals or entities that own shares in a corporation, giving them certain rights and a stake in its performance.

Lawsuit

A legal action brought in court by one party against another for the purpose of obtaining a remedy or resolution for a dispute.

Shareholder's Agreements

Contracts among a company's shareholders that describe their rights, obligations, and the company's operations.