Denver Mart is considering a project with a life of five 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 three 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? Multiple Choice A $62,025 B.-$43,719 C. $6,877 D. $55,002 E. $23,617

Denver Mart is considering a project with a life of five 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 three 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? Multiple Choice A $62,025 B.-$43,719 C. $6,877 D. $55,002 E. $23,617

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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