1.You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. The project has a 3-year life. You estimate the revenue for the next three years are as follows: $400,000 in year 1, $500,000 in year 2, and $530,000 in year 3. The cash expenses are expected to be $325,000 in year 1, $381,250 in year 2, and $398,125 in year 3. The project requires an initial investment of $165,000, which is depreciated straight-line to zero over the 3 year project life. The actual market value of the initial investment at the end of year 3 is $35,000. Initial net working capital investment is $75,000 (at year 0) and NWC will maintain a level equal to 20% of sales each year thereafter. The tax rate is 34% and the required return on the project is 10%. What is EBIT for the project in the first year?

Given the $75,000 initial investment in NWC, what change occurs for NWC during year 1?

a. There is no change in NWC.

b. There is a $5,000 increase in NWC.

c. There is a $5,000 decrease in NWC.

d. There is an $80,000 increase in NWC.

e. There is an $80,000 decrease in NWC.

2.What is the NPV of the following set of cash flows if the required return is15%?

YearCash Flow

0-$10,000

1-$1,000

2$10,000

3$10,000

4-$5,000

a. $408.27

b. $4000.00

c. $6,125.00

d. NPV cannot be found because the sign of cash flows changes more than once

e. None of the above