You are the CEO of Wilson’s Meats
that
is considering investing in the project that will last
for 5 years. The project has some level of uncertainty after time 3. At that time
(time 3)
if
it is unsuccessful, project sales
would fall to 1,400 units
for each of the next two years
(years 4 and 5)
. Each unit generates a cash flow of $20.00. At year 3 the firm can abandon
the project for $50,000. At time 3 would you continue with the project or abandon
it if the
project is unsuccessful if the discount rate is 12 percent
?
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