Question: Consider a project with a 4-year life. The initial cost to set up the project is $100,000. This amount is to be linearly depreciated to

Consider a project with a 4-year life. The initial cost to set up the project is $100,000. This amount is to be linearly depreciated to zero over the life of the project and there is no salvage value. The required return is 16% and the tax rate is 34%.

You've collected the following estimates:

	Base case	Pessimistic	Optimistic
Unit sales per year (Q)	8,000	6,000	10,000
Price per unit (P)	50	40	60
Variable cost per unit (VC)	20	35	15
Fixed costs per year (FC)	30,000	50,000	20,000

What is the annual incremental cash flow in the base case?

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