You Are Evaluating a Project for Your Company

question 24

Multiple Choice

You are evaluating a project for your company. You estimate the sales price to be $100 per unit and sales volume to be 5,000 units in year 1, 10,000 units in year 2, and 2,500 units in year 3. The project has a three-year life. Variable costs amount to $50 per unit and fixed costs are $75,000 per year. The project requires an initial investment of $250,000 in assets that 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 20 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 14 percent. What change in NWC occurs at the end of year 1?

• A) $65,000
• B) $70,000
• C) $100,000
• D) $250,000

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Definitions:

Thick Glasses

Eyewear with significantly strong lenses prescribed to correct severe visual impairments, making the lenses noticeably thicker than average.

Tracheostomy

A medical procedure involving the creation of an opening in the trachea through the neck to facilitate breathing when the usual airway is obstructed.

Dyspneic

Experiencing difficulty in breathing or shortness of breath, a symptom associated with various medical conditions.

Critical Thinking

The intellectual process of actively and skillfully conceptualizing, applying, analyzing, synthesizing, and evaluating information.