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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. Thediscount rate for the project is 12%. The firm expects to sell 2,100 units a year. The cash flowper unit is $20. The firm will have the option to abandon this project after three years at whichtime it expects it could sell the project for $50,000. You are interested in knowing how theproject will perform if the sales forecasts for years four and five of the project are revised suchthat there is a 50% chance that the sales will be either 1,400 or 2,500 units a year. What is thenet present value of this project given your sales forecasts?a. $23,617b. $23,719c. $25,002d. $26,877e. $28,746Ronnie?s Custom Cars purchased some fixed assets two years ago for $39,000. The assets areclassified as 5-year property for MACRS. Ronnie is considering selling these assets now so hecan buy some newer fixed assets which utilize the latest in technology. Ronnie has beenoffered $19,000 for his old assets. What is the net cash flow from the salvage value if the taxrate is 34%?MACRS 5-year propertyYear Rate1 20.00%2 32.00%3 19.20%4 11.52%5 11.52%6 5.76%a. $16,358.88b. $17,909.09c. $18,720.00d. $18,904.80e. $19,000.00Your firm is considering a project with a five-year life and an initial cost of $120,000. Thediscount rate for the project is 12%. The firm expects to sell 2,100 units a year. The cash flowper unit is $20. The firm will have the option to abandon this project after three years at whichtime it expects it could sell the project for $50,000. At what level of sales should the firm bewilling to abandon this project?a. 420 unitsb. 1,041 unitsc. 1,479 unitsd. 1,618 unitse. 2,500 units

 

Paper#53177 | Written in 18-Jul-2015

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