• Change in NWC You are evaluating a project for The Tiff-any golf club, guaran- teed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $400 per unit and sales volume to be 1,000 units in year 1; 1,500 units in and 1,325 units in year 3. The project has a three-year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 in assets, which will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end year 2; of 3 is expected to be $35,000. NWC requirements at the beginning of each year year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 34 percent and the required return on the project is 10 percent. What change in NWC occurs at the end of year 1? (LG12-3)
• Change in NWC You are evaluating a project for The Tiff-any golf club, guaran- teed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $400 per unit and sales volume to be 1,000 units in year 1; 1,500 units in and 1,325 units in year 3. The project has a three-year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 in assets, which will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end year 2; of 3 is expected to be $35,000. NWC requirements at the beginning of each year year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 34 percent and the required return on the project is 10 percent. What change in NWC occurs at the end of year 1? (LG12-3)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Net working capital should be $40,000 in year 1

Transcribed Image Text:# Change in NWC
You are evaluating a project for The Tiff-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $400 per unit and sales volume to be 1,000 units in year 1; 1,500 units in year 2; and 1,325 units in year 3. The project has a three-year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 in assets, which will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $35,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 34 percent and the required return on the project is 10 percent. What change in NWC occurs at the end of year 1? (LG12-3)
# Operating Cash Flow
Continuing the previous problem, what is the operating cash flow for the project in year 2? (LG12-3)
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