A corporate financial manager is evaluating a project. The fixed assets will cost $180,000 and the project will require an investment in net working capital of $10,000 at the outset. The assets will be depreciated straight-line to $0 over the three year life of the project. The manager assumes the fixed assets can be sold at the end of the life of the project for $20,000, pre-tax. The project will generate sales of $180,000 per year and have pre-tax operating costs other than depreciation of $85,000 per year. The tax rate is 40%, the required return on equity is 15%, and the required return on debt is 10%. The firms WACC is 10.50%. The end of year balance sheet and income statements are presented below. Note that the ending values for year 3 on the balance sheet are after all assets have been liquidated, which is the normal way of treating such projects for accounting purposes.

	0	1	2	3
Assets	190,000	130,000	70,000	0
Liabilities	107,990	78,829	46,606	0
Net Worth	82,010	51,171	23,394	0
Sales		180,000	180,000	180,000
Operating Costs		85,000	85,000	85,000
Depreciation		60,000	60,000	60,000
EBIT		35,000	35,000	35,000
Interest		10,799	7,883	4,661
EBT		24,201	27,117	30,339
Taxes (40%)		9,680	10,847	12,136
NI before FA Sales		14,521	16,270	18,203
AT Sale of FA		0	0	12,000
Net Income		14,521	16,270	30,203

A) Using the information presented in the vignette, the NPV would be closest to a) 0 b) 16,981 c) 22,981 d) 25,981

B) Using the information presented in the vignette, the economic profit at the end of year 2 would be closest to a) 2,350 b) 7,350 c) 9,350 d) 12,350

C) Using the information presented in the vignette, the residual income for year 1 would be closest to a )0 b) 2,220 c) 4,220 d) 6.220

D) Using the information presented in the vignette, economic rate of return for year 3 would be closest to a) 0% b) 10% c) 10.5% d) 15%

E) Using the information presented in the vignette, which of the following statements is most accurate? a) Sensitivity analysis would help the analyst by identifying the most likely outcome, statistically speaking b) Scenario analysis could be used to identify the worst-case scenario which would then set a sort of expected floor on the NPV analysis c) Monte Carlo simulation would be completed by first identifying the best, base and worst case values for each of the project inputs