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##### What is the net present value of this project given your sales forecasts?

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**Question**

Your firm is considering a project with a five-year life and an initial cost of $120,000. The;discount rate for the project is 12%. The firm expects to sell 2,100 units a year. The cash flow;per unit is $20. The firm will have the option to abandon this project after three years at which;time it expects it could sell the project for $50,000. You are interested in knowing how the;project will perform if the sales forecasts for years four and five of the project are revised such;that there is a 50% chance that the sales will be either 1,400 or 2,500 units a year. What is the;net present value of this project given your sales forecasts?;a. $23,617;b. $23,719;c. $25,002;d. $26,877;e. $28,746;Ronnie?s Custom Cars purchased some fixed assets two years ago for $39,000. The assets are;classified as 5-year property for MACRS. Ronnie is considering selling these assets now so he;can buy some newer fixed assets which utilize the latest in technology. Ronnie has been;offered $19,000 for his old assets. What is the net cash flow from the salvage value if the tax;rate is 34%?;MACRS 5-year property;Year Rate;1 20.00%;2 32.00%;3 19.20%;4 11.52%;5 11.52%;6 5.76%;a. $16,358.88;b. $17,909.09;c. $18,720.00;d. $18,904.80;e. $19,000.00;Your firm is considering a project with a five-year life and an initial cost of $120,000. The;discount rate for the project is 12%. The firm expects to sell 2,100 units a year. The cash flow;per unit is $20. The firm will have the option to abandon this project after three years at which;time it expects it could sell the project for $50,000. At what level of sales should the firm be;willing to abandon this project?;a. 420 units;b. 1,041 units;c. 1,479 units;d. 1,618 units;e. 2,500 units

Paper#20221 | Written in 18-Jul-2015

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