Margerit Is Reviewing a Project with Projected Sales of 1,500

question 49

Multiple Choice

Margerit is reviewing a project with projected sales of 1,500 units a year, a cash flow of $40 a unit and a three-year project life.The initial cost of the project is $95,000.The relevant discount rate is 15%.Margerit has the option to abandon the project after one year at which time she feels she could sell the project for $60,000.At what level of sales should she be willing to abandon the project?

• A)899 units
• B)923 units
• C)967 units
• D)1,199 units
• E)1,206 units

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Definitions:

Lease Agreement

In regard to the lease of goods, an agreement in which one person (the lessor) agrees to transfer the right to the possession and use of property to another person (the lessee) in exchange for rental payments.

Writing

The act or process of producing texts, such as letters, documents, or creative materials, using a pen, pencil, typewriter, or computer.

Warranty Deed

A legal document in real estate transactions that guarantees the seller holds clear title to the property and has the right to sell it.

Adjacent

Being next to or near something else, typically referring to physical location.