You are evaluating a project for The Farstroke golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Farstroke to be $480 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 $265 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $141,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $27,000. 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 change in NWC occurs at the end of year 1? (Enter a decrease as a negative amount using a minus sign.) Decrease of $ 121,951
You are evaluating a project for The Farstroke golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Farstroke to be $480 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 $265 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $141,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $27,000. 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 change in NWC occurs at the end of year 1? (Enter a decrease as a negative amount using a minus sign.) Decrease of $ 121,951
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:You are evaluating a project for The Farstroke golf club, guaranteed to correct that nasty slice. You estimate the sales price of The
Farstroke to be $480 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 $265 per unit and fixed costs are $100,000 per year. The project requires an initial
investment of $141,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the
end of year 3 is expected to be $27,000. 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 change in NWC occurs at the end of year 1? (Enter a decrease as a negative amount using a minus sign.)
Decrease of
$
121,951
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