Ruzzo's Is Considering a Project with a 5-Year Life and an Initial

question 20

Multiple Choice

Ruzzo's is considering a project with a 5-year life 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.The cash flow per unit is $20.The firm will have the option to abandon this project after three years at which time it expects it could sell the project for $45,000.At what level of sales should the firm be willing to abandon this project?

• A)1,087.15 units
• B)1,331.32 units
• C)1,479.92 units
• D)1,618.87 units
• E)2,500.00 units

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Definitions:

Indifference Curves

Graphical representations showing different combinations of two goods that provide the same level of utility to the consumer.

Bundle

A combination of various goods or services sold together as a single package.

Constants

Values that do not change, remaining the same in various contexts or equations.

Indifference Curves

A graphical representation showing different combinations of two goods that provide equal satisfaction and utility to a consumer.