You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the sales price of TheUltimate to be $300 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 $200 per unit and fixed costs are $50,000 per year. The project requires an initial investment of $150,000 in assets that will bedepreciated 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 $25,000.NWC requirements at the beginning of each year will be approximately 10 percent of the projected sales during the coming year. The tax rate is 21percent and the required return on the project is 10 percent. What will the free cash flow for this project be in year 2?Multiple ChoiceО$107,250$102,450$53,000$49,950

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Description: You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the sales price of TheUltimate to be $300 per unit and sales volume to be 1,000 units in year 1, 1,250 units in year 2,

The free cash flow is the money that remains after a person pays all of their bills and expenses. It…

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What will the free cash flow for this project be in year 2?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 19P

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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 the 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 can be depreciated using bonus depreciation. The actual market value of these assets at the beginning 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 21 percent and the required return on the project is 10 percent. What will the cash flows for this project be? What are the NPV and IRR? Given 10 percent cost of capital would you recommend this project?
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 can be depreciated using bonus depreciation. 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 21 percent and the required return on the project is 10 percent. (Use SL depreciation table) What will the cash flows for this project be? Total Cash Flow Year 0: Total Cash Flow Year 1: Total Cash Flow Year 2: Total Cash Flow Year 3: