You Are Evaluating a Project for the Ultimate Recreational Tennis

question 351

Multiple Choice

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 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 $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 which is depreciated straight-line to zero over the three year project life. The actual market value of the initial investment at the end of year 3 is $35,001. Initial net working capital investment is $75,000 and NWC will maintain a level equal to 20% of sales each year thereafter. The tax rate is 34% and the required return on the project is 10%.

What is the total cash flow for the project in year 3?

• A) $126,461
• B) $178,156
• C) $194,945
• D) $234,838
• E) $239,100

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Definitions:

Alphabetic Index

A systematic arrangement of terms, names, or other items, organized alphabetically to facilitate lookup.

Main Term

In indexing and documentation, the primary word or phrase used to describe the main idea or topic of a document, book, or article.

ICD-10-CM Coding Manual

The International Classification of Diseases, Tenth Revision, Clinical Modification, used for diagnosis coding in the healthcare setting.

Volumes

In medical terms, it refers to the measurement of the capacity or space inside organs or structures, important in assessing their function and condition.