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You are evaluating a project for a superior pickleball paddle.  You estimate the sales price to be $200 per unit and sales volume to be 1,000 units in year 1; 1,200 units in year 2; and 1,100 units in year 3.  The project has a three-year life.  Variable costs amount to $50 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 using bonus depreciation.  The actual market value of these assets at the end of year 3 is expected to be $20,000.  NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. If the company invests in the project, it plans to increase dividends by $10,000 each year. The tax rate is 21 percent and the required return on the project is 10 percent.  Prepare a schedule of project cash flows by year. Clearly label the rows showing EBIT, OCF and Free (Total) Cash Flows.  Compute the project's NPV and IRR.  Do you recommend accepting or rejecting the project?

You are evaluating a project for a superior pickleball paddle.  You estimate the sales price to be $200 per unit and sales volume to be 1,000 units in year 1; 1,200 units in year 2; and 1,100 units in year 3.  The project has a three-year life.  Variable costs amount to $50 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 using bonus depreciation.  The actual market value of these assets at the end of year 3 is expected to be $20,000.  NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. If the company invests in the project, it plans to increase dividends by $10,000 each year. The tax rate is 21 percent and the required return on the project is 10 percent.  Prepare a schedule of project cash flows by year. Clearly label the rows showing EBIT, OCF and Free (Total) Cash Flows.  Compute the project's NPV and IRR.  Do you recommend accepting or rejecting the project?

Essentials Of Investments
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
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 You are evaluating a project for a superior pickleball paddle.  You estimate the sales price to be $200 per unit and sales volume to be 1,000 units in year 1; 1,200 units in year 2; and 1,100 units in year 3.  The project has a three-year life.  Variable costs amount to $50 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 using bonus depreciation.  The actual market value of these assets at the end of year 3 is expected to be $20,000.  NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. If the company invests in the project, it plans to increase dividends by $10,000 each year. The tax rate is 21 percent and the required return on the project is 10 percent. 

  1. Prepare a schedule of project cash flows by year. Clearly label the rows showing EBIT, OCF and Free (Total) Cash Flows. 
  2. Compute the project's NPV and IRR.  Do you recommend accepting or rejecting the project?
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