Question

You are evaluating a product for your company. You estimate the sales price of product to be $180 per unit and sales volume to be 10,800 units in year 1: 25,800 units in year 2; and 5,800 units in year 3 The project has a 3 year life. Variable costs amount to S105 per unit and fixed costs are $208,000 per year. The project requires an initigl investment of $348,000 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 $48,000 NWC requirements at the beginning of each year will be approximately 14% of the projected sales during the coming year. The tax rate is 34% and the required return on the project is 9%, what wa the year 2 cash flows for this project be? Mutiple Choice $1063,260 $1379 260 < Prev 5 of 25 Ell Next > 85 5 8 WE Ul command option

Answer 1

	0	1	2	3
Sales in units		10800	25800	5800
Sales revenue		$ 19,44,000	$ 46,44,000	$   10,44,000
Variable cost		$ 11,34,000	$ 27,09,000	$     6,09,000
Fixed cost		$    2,08,000	$    2,08,000	$     2,08,000
Depreciation (348000/3)		$    1,16,000	$    1,16,000	$     1,16,000
EBIT		$    4,86,000	$ 16,11,000	$     1,11,000
Tax at 34%		$    1,65,240	$    5,47,740	$         37,740
NOPAT		$    3,20,760	$ 10,63,260	$         73,260
Add: Depreciation		$    1,16,000	$    1,16,000	$     1,16,000
OCF		$    4,36,760	$ 11,79,260	$     1,89,260
Capital expenditure	$     3,48,000			$       -31,680
Change in NWC	$     2,72,160	$    3,78,000	$   -5,04,000	$   -1,46,160
FCF	$   -6,20,160	$        58,760	$ 16,83,260	$     3,67,100
Answer:
Year 2 cash flows for the project			$ 16,83,260