Reference no: EM132616725

Problem 1: You are evaluating a product for your company. You estimate the sales price of product to be $270 per unit and sales volume to be 11,700 units in year 1; 26,700 units in year 2; and 6,700 units in year 3. The project has a 3 year life. Variable costs amount to $195 per unit and fixed costs are $217,000 per year. The project requires an initial investment of $375,000 in assets which will be depreciated straight-line to zero over the 3 year project life. The actual market value of these assets at the end of year 3 is expected to be $57,000. NWC requirements at the beginning of each year will be approximately 17% of the projected sales during the coming year. The tax rate is 35% and the required return on the project is 10%. What will the year 2 cash flows for this project be?

Problem 2: You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $280,000. The truck falls into the MACRS 10-year class, and it will be sold after 10 years for $53,000. Use of the truck will require an increase in NWC (spare parts inventory) of $5,300. The truck will have no effect on revenues, but it is expected to save the firm $83,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 40 percent. What will the cash flows for this project be during year 3?