When William first pitched a new product idea to his manager, it was very well received because he did such a thorough job of researching and analyzing it. He presented a comprehensive forecast that included both possible and probable levels of returns to be earned from this investment. As a result, the company handed over the money and put William in charge of the project. The company planned to evaluate the investment based on his "probable" forecast. One year into the project, money started getting tight in other divisions of the company, Pressure was on for William to provide some proof that this 3-year investment was starting to work. As of the end of that first year, $12,000 in operating costs and $12,000 in new operating cash inflows (both reflect after-tax amounts) had been realized. William had collected the following information but clearly still only had projections for the remaining 2 years of this project. Estimated (and actual) initial project investment Estimated annual operating cash outflows (after-tax) Estimated operating cash inflows (after-tax): Year 1 Year 2 Year 3 $15,600 12,000 13,100 19,700 39,100

When William first pitched a new product idea to his manager, it was very well received because he did such a thorough job of researching and analyzing it. He presented a comprehensive forecast that included both possible and probable levels of returns to be earned from this investment. As a result, the company handed over the money and put William in charge of the project. The company planned to evaluate the investment based on his "probable" forecast. One year into the project, money started getting tight in other divisions of the company, Pressure was on for William to provide some proof that this 3-year investment was starting to work. As of the end of that first year, $12,000 in operating costs and $12,000 in new operating cash inflows (both reflect after-tax amounts) had been realized. William had collected the following information but clearly still only had projections for the remaining 2 years of this project. Estimated (and actual) initial project investment Estimated annual operating cash outflows (after-tax) Estimated operating cash inflows (after-tax): Year 1 Year 2 Year 3 $15,600 12,000 13,100 19,700 39,100

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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