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1. Bush Boomerang, Inc., is considering a new three year expansion project that requires an initial fixed asset investment of $2.1 million. The fixed asset

1. Bush Boomerang, Inc., is considering a new three year expansion project that requires an initial fixed asset investment of $2.1 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,900,000 in annual sales, with costs of $850,000. If the tax rate is 35%, what is the OCF for this project?

2. Cool Waters, Inc. sells bottled water. The firm keeps in inventory plastic bottles at 10% of the monthly projected sales. These plastic bottles cost $0.005 each. The monthly sales for the coming year are as follows:

January

2,000,000

August

9,000,000

February

2,200,000

September

6,000,000

March

2,700,000

October

4,000,000

April

3,000,000

November

2,500,000

May

3,600,000

December

1,300,000

June

5,500,000

January one year out

2,200,000

July

7,000,000

Show the anticipated cost of plastic bottles each month for these project sales, the beginning inventory volume and ending inventory volume each month, and the monthly increase or decrease in cash flow for inventory given that an increase is a use of cash and a decrease is a source of cash.

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