Project Cash Flows

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 3-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

3 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?

Please, explain only the depreciation part of the problem. Thank you