XYZ Corporation is considering a new product line. They believe the new product can be sold for $10 per unit and will have the following demand over the next 3 years: 10,000 units in year 1, 15,000 in year 2 and 17,000 in year three. The incremental costs of these products will consume 50% of the sale price. The new line will require a machine be purchased today for $60,000 and depreciated using the straight line method over the life of the machine with a salvage value of zero. The project will utilize $30,000 in net working capital and the company’s tax rate is 30%. Which of the following are true regarding the project’s relevant cash flows for year 0, 1, 2, 3. I, II & III are correct b. I. The company’s year zero cash flow is (-$60000) c. II. The company’s cash flow in year 1 is $41,000 d. II & III are correct e. III. The company’s cash flow in year 3 is 65,500
XYZ Corporation is considering a new product line. They believe the new product can be sold for $10 per unit and will have the following demand over the next 3 years: 10,000 units in year 1, 15,000 in year 2 and 17,000 in year three. The incremental costs of these products will consume 50% of the sale price. The new line will require a machine be purchased today for $60,000 and depreciated using the straight line method over the life of the machine with a salvage value of zero. The project will utilize $30,000 in net working capital and the company’s tax rate is 30%. Which of the following are true regarding the project’s relevant cash flows for year 0, 1, 2, 3. I, II & III are correct b. I. The company’s year zero cash flow is (-$60000) c. II. The company’s cash flow in year 1 is $41,000 d. II & III are correct e. III. The company’s cash flow in year 3 is 65,500
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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XYZ Corporation is considering a new product line. They believe the new product can be sold for $10 per unit and will have the following demand over the next 3 years: 10,000 units in year 1, 15,000 in year 2 and 17,000 in year three. The incremental costs of these products will consume 50% of the sale price. The new line will require a machine be purchased today for $60,000 and
I, II & III are correct
b.
I. The company’s year zero cash flow is (-$60000)
c.
II. The company’s cash flow in year 1 is $41,000
d.
II & III are correct
e.
III. The company’s cash flow in year 3 is 65,500
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