a. What is the Total Initial Investment in this project? (3 points) $240,000 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 3 year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment in equipment of $165,000 which is depreciated straight-line to zero over the 3 year project life. The actual market value of the equipment at the end of year 3 is $35,000. Initial net working capital investment is $75,000. The tax rate is 35% and the required return on the project is 10%.
Use this information to answer questions (a)-(c) below
a. What is the Total Initial Investment in this project? (3 points) b. What is the operating cash flow for the project in year 1? (6 points) c. What total amount of terminal value in year 3? (4 points)
d. Should you accept/reject the project is you use the NPV method? (11 points)