You are evaluating a product for your company. You estimate the sales price of product to be $260 per unit and sales volume to be 11,600 units in year 1; 26,600 units in year 2; and 6,600 units in year 3. The project has a 3 year life. Variable costs amount to $185 per unit and fixed costs are $216,000 per year. The project requires an initial investment of $372,000 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 $56,000. NWC requirements at the beginning of each year will be approximately 16% of the projected sales during the coming year. The tax rate is 34% and the required return on the project is 11%. What will the year 2 cash flows for this project be?
$1,092,300
$1,216,300
$592,300
$1,655,000
My answer so far:
I got sale will go from 3,016,000 to 6,916,000 between years 1 and 2, but I don't know how to calculate how NWC will increase. Can yo give me the detail on how to compute so that I can use it for future problems, please?
You are evaluating a product for your company. You estimate the sales price of product to be $260 per unit and sales volume to be 11,600 units in year 1; 26,600 units in year 2; and 6,600 units in year 3. The project has a 3 year life. Variable costs amount to $185 per unit and fixed costs are $216,000 per year. The project requires an initial investment of $372,000 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 $56,000. NWC requirements at the beginning of each year will be approximately 16% of the projected sales during the coming year. The tax rate is 34% and the required return on the project is 11%. What will the year 2 cash flows for this project be?
$1,092,300
$1,216,300
$592,300
$1,655,000
My answer so far:
I got sale will go from 3,016,000 to 6,916,000 between years 1 and 2, but I don't know how to calculate how NWC will increase. Can yo give me the detail on how to compute so that I can use it for future problems, please?
Related questions
| You are evaluating a project for The Tiff-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $470 per unit and sales volume to be 1,000 units in year 1; 900 units in year 2; and 1,325 units in year 3. The project has a 3-year life. Variable costs amount to $260 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $186,000 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 $42,000. NWC requirements at the beginning of each year will be approximately 25 percent of the projected sales during the coming year. The tax rate is 35 percent and the required return on the project is 11 percent. |
| What change in NWC occurs at the end of year 1? |
| You are evaluating a project for The Tiff-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $420 per unit and sales volume to be 1,000 units in year 1; 1,500 units in year 2; and 1,325 units in year 3. The project has a 3-year life. Variable costs amount to $235 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $171,000 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 $37,000. NWC requirements at the beginning of each year will be approximately 30 percent of the projected sales during the coming year. The tax rate is 30 percent and the required return on the project is 12 percent. |
| What is the operating cash flow for the project in year 2? |
| Operating cash flow | $ |
