Denver Mart Is Considering a Project with a 5-Year Life

question 8

Multiple Choice

Denver Mart is considering a project with a 5-year life and an initial cost of $120,000.The discount rate is 12 percent.The firm expects to sell 2,100 units a year with a cash flow per unit of $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 $50,000.The firm is interested in knowing how the project will perform if the sales forecast for Years 4 and 5 of the project are revised such that there is a 50 percent chance that the sales will be 1,400 units and a 50 percent chance they will be 2,500 units a year.What is the net present value of this project given your sales forecasts?

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

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