You Are Evaluating a Project for the Ultimate Recreational Tennis

question 5

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 operating cash flow for the project in year 2?

• A) $26,400
• B) $68,200
• C) $97,075
• D) $101,210
• E) $105,738

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Definitions:

Pyrexic

Another term for having a fever, characterized by an elevated body temperature above the normal range.

Thermometer

An instrument for measuring and indicating temperature, commonly used in healthcare to monitor body temperature.

Hyperthermia

Situation in which body temperature exceeds the set point.

Thermoregulatory Mechanisms

Physiological processes that maintain the body's internal temperature within a normal healthy range, regardless of external conditions.