Patience Is Reviewing a Project with Projected Sales of 4,200

question 59

Multiple Choice

Patience is reviewing a project with projected sales of 4,200 units a year,a cash flow of $28 a unit,and a four-year project life.Assume all operating cash flows occur on the last day of each year.The initial cost of the project is $247,000.The relevant discount rate is 13 percent.Patience has the option to abandon the project after two years at which time she feels she could sell the project's assets for $110,000.At what level of annual sales,starting in year 3,should she be willing to abandon this project?

• A)2,119 units
• B)2,355 units
• C)2,367 units
• D)2,516 units
• E)2,667 units

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Definitions:

Residential Building Lot

A plot of land designated for the construction of a residential home.

Compounded Monthly

Interest on an investment calculated each month and added to the principal sum, leading to exponential growth of the investment.

Minimum Rate

The lowest possible interest rate that could be applied to a loan or financial product.

Guaranteeing Month-end

ensuring financial or operational activities are completed or accounted for at the end of each month.