Dressler Technologies Is Considering a Project with a 3-Year Life

question 84

Multiple Choice

Dressler Technologies is considering a project with a 3-year life and an initial cost of $87,000.The discount rate for the project is 14.5 percent.The firm expects to sell 1,300 units on the last day of each year.The cash flow per unit is $32.The firm will have the option to abandon this project at the end two years (after year 2 sales) at which time the project's assets could be sold for an estimated $30,000.The firm's managers are interested in knowing how the project will perform if the sales forecast for year 3 of the project is revised such that there is a 50/50 chance that the sales will be either 1,000 or 1,400 units a year.What is the net present value of this project at time zero given the current sales forecasts?

• A)-$3,474
• B)-$2,526
• C)$7,426
• D)$8,192
• E)$8,887

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Definitions:

Quick Ratio

A liquidity ratio that measures a company's ability to meet its short-term obligations with its most liquid assets, excluding inventories.

Debt-Paying Ability

A measurement or assessment of a company's capacity to meet its debt obligations with its assets or income.

Interest Calculations

Interest Calculations involve determining the amount of interest due on loans, investments, or savings, based on the principal amount, rate of interest, and time period.

Note Issuance

The process of creating and distributing promissory notes, which are legal promises to pay specified amounts at future dates.