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Company ABC is examining a new project. It expects to sell 8,000 units per year...

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Finance

  1. Company ABC is examining a new project. It expects to sell 8,000 units per year at $36 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $36 x 8,000 = $288,000. The relevant discount rate is 14 percent, and the initial investment required is $1,060,000. After the first year, the project can be dismantled and sold for $840,000. If expected sales are revised based on the first year s performance, when would it make sense to abandon the investment? In other words, at what level of expected sales would it make sense to abandon the project? (Hint: the project would be abandoned if the PV of the future cash flows is less than the salvage value from abandonment)

    4,842 units

    4,805 units

    4,786 units

    4,740 units

    4,717 units

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