You are evaluating a product for your company. You estimate the sales price of product to be $210 per unit and sales volume to be 11,100 units in year 1; 26,100 units in year 2; and 6,100 units in year 3. The project has a 3 year life. Variable costs amount to $135 per unit and fixed costs are $211,000 per year. The project requires an initial investment of $357,000 in assets which will be depreciated straight-line to zero over the 3 year project life. The actual market value of these assets at the end of year 3 is expected to be $51,000. NWC requirements at the beginning of each year will be approximately 16% of the projected sales during the coming year. The tax rate is 21% and the required return on the project is 11%. What will the year 2 free cash flow for this project be? Multiple Choice O $1,404,725 $2,076,725 $1,285,725 $1,627,500
You are evaluating a product for your company. You estimate the sales price of product to be $210 per unit and sales volume to be 11,100 units in year 1; 26,100 units in year 2; and 6,100 units in year 3. The project has a 3 year life. Variable costs amount to $135 per unit and fixed costs are $211,000 per year. The project requires an initial investment of $357,000 in assets which will be depreciated straight-line to zero over the 3 year project life. The actual market value of these assets at the end of year 3 is expected to be $51,000. NWC requirements at the beginning of each year will be approximately 16% of the projected sales during the coming year. The tax rate is 21% and the required return on the project is 11%. What will the year 2 free cash flow for this project be? Multiple Choice O $1,404,725 $2,076,725 $1,285,725 $1,627,500
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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Transcribed Image Text:You are evaluating a product for your company. You estimate the sales price of product to be $210 per unit and sales volume to be 11,100 units in year 1;
26,100 units in year 2; and 6,100 units in year 3. The project has a 3 year life. Variable costs amount to $135 per unit and fixed costs are $211,000 per
year. The project requires an initial investment of $357,000 in assets which will be depreciated straight-line to zero over the 3 year project life. The actual
market value of these assets at the end of year 3 is expected to be $51,000. NWC requirements at the beginning of each year will be approximately 16%
of the projected sales during the coming year. The tax rate is 21% and the required return on the project is 11%. What will the year 2 free cash flow for this
project be?
Multiple Choice
$1,404,725
$2,076,725
$1,285,725
$1,627,500
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