a. What is the Total Initial Investment in this project? (3
points) $240000 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 1000 units in year 1 1250 units in year
2 and 1325 units in year 3. The project has a 3 year life.
Variable costs amount to $225 per unit and fixed costs are $100000
per year. The project requires an initial investment in equipment
of $165000 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 $35000. Initial net working capital investment is
$75000. 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)
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