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 $170,000 which is depreciated straight-line to zero over the three-year project life. The expected scrap value of the asset at the end of year 3 is $35,000. Networking capital investment is initially lowered by $80,000 and it will be fully replaced at the end of the project’s life. The tax rate is 34% and the required return on the project is 10%. What is the NPV of this project? Accordingly, what is your decision?

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 the 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 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the beginning of year 3 is expected to be $35,000. 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 21 percent and the required return on the project is 10 percent. What will the cash flows for this project be? What are the NPV and IRR? Given 10 percent cost of capital would you recommend this project?

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 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 $35,000. 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 change in NWC occurs at the end of year 1?

NO2.3 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 $170,000 which is depreciated straight-line to zero over the three-year project life. The expected scrap value of the asset at the end of year 3 is $35,000. Net working capital investment is initially lowered by $80,000 and it will be fully replaced at the end of the project’s life. The tax rate is 34% and the required return on the project is 10%. What is the NPV of this project? Accordingly what is your decision?

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