Aggarwal Enterprises Is Considering a New Project That Has an Initial

question 51

Multiple Choice

Aggarwal Enterprises is considering a new project that has an initial cash outflow of $1,000,000,and the CFO set up the following simple decision tree to show its three most-likely scenarios.The firm could arrange with its work force and suppliers to cease operations at the end of Year 1 should it choose to do so,but to obtain this abandonment option,it would have to make a payment to those parties.How much is the option to abandon worth (in thousands of dollars) to the firm? Do not round the intermediate calculations. ​

• A) $59.7
• B) $44.6
• C) $58.1
• D) $57.1
• E) $51.9

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Definitions:

Turnover

The rate at which inventory or assets of a business are replaced or sales are made over a specific period.

Margin

Generally refers to the difference between the selling price of a good or service and its cost, expressed as a percentage of the selling price.

Residual Income

The income that remains after deducting all required costs of capital from operating income, used as a measure of profitability.

Margin

Margin refers to the difference between the selling price of a good or service and its cost of production, usually expressed as a percentage of the selling price.