Your firm is considering a project with a four-year life and an initial cost of $87,000....

Your firm is considering a project with a four-year life and an initial cost of $87,000. The discount rate for the project is 15 percent. The firm expects to sell 1,800 units a year. The cash flow per unit is $19. The firm will have the option to abandon this project after two years at which time they expect they could sell the project for $40,000. At what level of sales should the firm be willing to abandon this project?
A. 1,295 units
B. 1,361 units
C. 1,540 units
D. 1,565 units

Expert Solution

We see that the Sales is given as=40000*15%/(1-1/1.15^2)*1/19
=1294.98
=1295 units

jeff jeffy answered 2 years ago

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