Question

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 $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 which will be depreciated 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 21 percent and the required return on the project is 10 percent. What will the free cash flow for this project be in year 3?

Answer #1

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 $330 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 3-year life. Variable
costs amount to $190 per unit and fixed costs are $100,000 per
year. The project requires an initial investment of $144,000 in...

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 $350 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 3-year life. Variable
costs amount to $200 per unit and fixed costs are $100,000 per
year. The project requires an initial investment of $150,000 in...

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 $430 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 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...

You are evaluating a project for The Ultimate recreational
tennis racket, guaranteed to correct that wimpy backhand. You
estimate the unit sales price of The Ultimate to be $500 and sales
volume to be 1,000 units in year 1; 1,250 units in year 2, and
1,450 units in year 3. The project has a three year life. Variable
costs amount to $225 per unit and fixed costs, excluding
depreciation, are $110,000 per year. The project requires an
initial investment of...

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; 1,520 units in year 2;
and 1,235 units in year 3. The project has a 3-year life. Variable
costs amount to $220 per unit and fixed costs are $100,000 per
year. The project requires an initial investment of $165,000 in...

You are evaluating a project for The Farpour golf club,
guaranteed to correct that nasty slice. You estimate the sales
price of The Tiff-any to be $400 per unit and sales volume to be
1000 units in year 1; 1500 units in year 2; and 1325 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...

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 $490 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 $270 per
unit and fixed costs are $100,000 per year. The project requires an
initial investment of $192,000 in assets,...

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 $490 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
$270 per unit and fixed costs are $100,000 per year. The project
requires an initial investment of $138,000 in assets,...

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 $490 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
$270 per unit and fixed costs are $100,000 per year. The project
requires an initial investment of $138,000 in assets,...

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,...

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