Business, 25.10.2019 22:43 brooke012002

Brewster's is considering a project with a life of 5 years and an initial cost of $120,000. the discount rate for the project is 12 percent. the firm expects to sell 2,100 units a year at a net cash flow per unit of $20. the firm will have the option to abandon this project after three years at which time it could sell the project for $50,000. the firm is interested in knowing how the project will perform if the sales forecasts for years 4 and 5 of the project are revised such that there is a 50 percent chance the sales will be either 1,400 or 2,500 units a year. what is the net present value of this project given these revised sales forecasts? select one: a. $23,617b. $23,719c. $25,002d. $26,877e. $28,745

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Answer from: briarkaltvedt

Net present value 27.792‬

Explanation:

Sales 2.100 units x 20 net cash flow = $ 42,000 cash flow per year

Present value of the first three years:

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C42,000

time 3 years

discount rate: 0.12

$42000 \times \frac{1-(1+0.12)^{-3} }{0.12} = PV\\$

PV$100,876.9133

For year 4 and 5 we need to check for the expected cashflow

We will multiply each outcome by their probability:

1,400 units x $20 per unit x 0.5 chance = 14,000

2,500 units x $20 per unit x 0.5 chance = 25,000

expected return: 39,000

present value of these years:

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity $39,000.0000

time 4 end of year 4th

rate 0.12

$\frac{39000}{(1 + 0.12)^{4} } = PV$

PV 24,785.21

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity $39,000.0000

time 5 end of year 5th

rate 0.12

$\frac{39000}{(1 + 0.12)^{5} } = PV$

PV 22,129.65

Net present value will be the present value of the cash flow less the investment.

100,877 + 24,785 + 22,130 - 120,000 = 27.792‬

Answer from: Quest

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

Answer from: Quest

explanation:

regressive tax taxes the poor and less of the wealthy. this the rich get richer and the poor get more poor. this would create a large wealth gap.

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Brewster's is considering a project with a life of 5 years and an initial cost of $120,000. the disc...

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