Multiple Choice
Denver Mart is considering a project with a life of 5 years and an initial cost of $136,000.The discount rate is 11 percent.The firm expects to sell 2,200 units a year with a cash flow per unit of $26.The firm will have the option to abandon this project after 3 years at which time it expects it could sell the project for $48,000.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 probability of 50 percent that the sales will be 1,000 units and a probability of 50 percent 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) -$43,719
C) $55,002
D) $6,877
E) $62,025
Correct Answer:
Verified
Correct Answer:
Verified
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