You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that...
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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 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 which is depreciated straight- line to zero over the three year project life. The actual market value of the initial investment at the end of year 3 is $35,001. Initial networking capital investment is $75,000 and NWC will maintain a level equal to 20% of sales each year thereafter. The tax rate is 34% and the required return on the project is 10% What is the operating cash flow for the project in year 2? Multiple Choice $105,738 $97,075 $26,400 $101,210 $68,200
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