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 $430 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 $240 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $174,000 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 $38,000. 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 is the operating cash flow for the project in year 2?

Operating cash flow

$

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Your company is contemplating replacing their current fleet of delivery vehicles with Nissan NV vans. You will be replacing 5 fully-depreciated vans, which you think you can sell for $4,200 apiece and which you could probably use for another 2 years if you chose not to replace them. The NV vans will cost $41,000 each in the configuration you want them, and can be depreciated using MACRS over a 5-year life. Expected yearly before-tax cash savings due to acquiring the new vans amounts to about $4,900 each. If your cost of capital is 10 percent and your firm faces a 30 percent tax rate, what will the cash flows for this project be? (Round your answers to the nearest dollar amount.)

Year	0		1		2		3		4		5		6
FCF	$		$		$		$		$		$

Answer 1