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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Definitions:

Change

The process of becoming different in some particular way, without permanently losing one's identity.

Change Process

The sequence of steps or actions undertaken to move an organization from its current state to a desired future state.

Lewin

Lewin, often referred to as Kurt Lewin, was a pioneering psychologist known for his contributions to social, organizational, and applied psychology.

Stages

Distinct phases or periods within a process or event, characterized by particular features or activities.