Project for an amount lower than its book value

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Reference no: EM131492831

1) You are evaluating a project for your company. You estimate the sales price to be $300 per unit and sales volume to be 5000 units in year 1; 6000 units in year 2; and 4000 units in year 3. The project has a three-year life. Variable costs amount to $100 per unit and fixed costs are $150,000 per year. The project requires an initial investment of $240,000 in assets that will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $60,000. An initial investment of $50,000 in NWC is required at the beginning of the project . The tax rate is 30 percent and the required return on the project is 13 percent. What is the after-tax operating cash flow for the project in YEAR 2 (YEAR 2 ONLY!)?

Select one:

a. $735,000

b. $815,000

c. $759,000

d. $679,000

2) In capital budgeting analysis, selling a machine at the end of the project for an amount lower than its book value

Select one:

a. Results in an after-tax cash flow from the sale of the machine lower than the machine's market value.

b. Is not possible.

c. Results in an after-tax cash flow from the sale of the machine higher than the machine's market value.

d. Leads to an adjustment of the machine's purchase price for the purposes of the project's cash flow calculations.

Reference no: EM131492831

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