What will the year two cash flows for the project be

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Question 1: You are evaluating a product for your company. You estimate the sales price of product to be $210 per unit and sales volume to be 11,100 units in year 1; 26,100 units in year 2; and 6,100 units in year 3. The project has a 3 year life. Variable costs amount to $135 per unit and fixed costs are $211,000 per year. The project requires an initial investment of $357,000 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 $51,000. NWC requirements at the beginning of each year will be approximately 16% of the projected sales during the coming year. The tax rate is 40% and the required return on the project is 11%. What will the year 2 cash flows for this project be?

Multiple Choice

Option 1: $1,767,500

Option 2: $1,095,500

Option 3: $976,500

Option 4: $1,627,500

Reference no: EM132531627

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