You are evaluating a project for The Tiff-any golf club, guaranteed to correct t
ID: 2761779 • Letter: Y
Question
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 $460 per unit and sales volume to be 1,200 units in year 1; 1,125 units in year 2; and 1,000 units in year 3. The project has a 3-year life. Variable costs amount to $255 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $147,000 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 $29,000. 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 39 percent and the required return on the project is 11 percent.
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 $460 per unit and sales volume to be 1,200 units in year 1; 1,125 units in year 2; and 1,000 units in year 3. The project has a 3-year life. Variable costs amount to $255 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $147,000 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 $29,000. 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 39 percent and the required return on the project is 11 percent.
Explanation / Answer
Actually there would net infflow d ue to release of WC worth 8625
Units sold 1125 Unit price 460 Sales 517500 Variabes cost 286875 Fixed Cost 1,00,000 Depreication 49000 PBT 81,625 tax rate 31833.75 PAT 49,791 WC investmentinvestment year 2 129375 Sales in year1 552000 WC investmentin year 1 138000 Net WC In year 2 8625 Cash flows(PAT +Dpreciation+ Net WC in year 2 1,07,416Related Questions
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