You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the sales price of The Ultimate to be $400 per unit and sales volume to be 1,000 units in year 1; 1,250 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 will the cash flows for this project be?
Answer to relevant QuestionsMom's Cookies, Inc. is considering the purchase of a new cookie oven. The original cost of the old oven was $30,000; it is now five years old, and it has a current market value of $13,333.33. The old oven is being ...Compute the NPV statistic for Project U and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is tenpercent.Compute the MIRR statistic for Project I and tell whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12percent.Use the IRR decision rule to evaluate this project; should it be accepted or rejected? The IRR for this project will be the solutionto: Use the PI decision rule to evaluate this project; should it be accepted or rejected?Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects ...
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