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?
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