Questions 13-16 are based on the same following information.

O.J. Simpson decided to make some money. He plans to build a theme park. Not having enough experience in causing nightmares, O.J. interviewed Freddy Kruger for the position of chief operating officer (COO) of his park. Freddy liked the job description very much because he could finally be paid for his hobby and make some money for his retirement. Even though Freddy is currently busy at Elm Street, he agreed to run the park for the next 25 years. After that the park will be closed.

O.J. and Freddy estimated the following costs and revenue. O.J. would immediately need to start construction on the land he bought 2 years ago. Current market value of the land is $4 million. To start operations, $27.9 million needs to be spent for knives, blades, gloves, baseball bats, blow torches, chains, computers, and other equipment. Total before tax salvage value of all the equipment and supplies will be $2.9 million. A new buildings construction costs $50 million dollars and will have $10 million before tax salvage value. O.J. could fully depreciated the buildings and equipment on a straight-line basis for 25 years.

They estimated that Freddy could handle 5,000 visitors each day for 300 days a year, each paying $40 daily admission.

O.J. will pay Freddy a salary of $3.3 million per year, $15 million per year for additional labor, and $3.7 million per year for utilities. If the park is opened, O.J. will hire John Cochran, David\id Kendall, Kenneth Starr, and Verman Jordan to provide unlimited legal services for the next 25 years. They will be collectively paid $9.5 million per year. O.J. mentioned that if the number of visitors injury lawsuits is higher than expected, then his current lawyer, Monica Lewinski, could also help. Five years ago, Monica signed 30-year contract promising annual salary of $2 million to provide unlimited legal services to O.J.s other companies. She will not ask for an increase in her salary if she is also helping in his park.

O.J. recently paid $0.7 million to Mr. McDougals firm for tax accounting advice, suggesting that average business tax rate will be 40%

Last month O.J. paid Freddys girlfriends firm to make a marketing survey. She billed him $0.4 million for that. If the park opens, then she will continue to provide unlimited marketing services to the park for $0.5 million annually.

To run the business smoothly, however, O.J. will incur a change in net working capital: $8 million increase in inventory, $2.5 million increase in minimum cash balance, $18 million increase in accounts receivable, and $2.5 million increase in accounts payable. This amount will be recovered at the termination of the business.

O.J. has only $2.7 million dollars and the rest of the money needed to finance the project will be borrowed from a bank controlled by his buddy John Cochran. The loan will be amortized for over the life of the project and interest will be 10.7%. O.J.s required rate of return is 13.85%.

13.) How much is the change in net working capital

A. $14 mil

B. $27 mil

C. $11.5 mil

D. $26 mil

E. $28.5 mil

14.) How much is the initial investment for the project?

A. $118.9 mil

B. $64 mil

C. $91.9 mil

D. $107.9 mil

E. $31.9 mil

15.) How much is the incremental 3^rd year operating cash flow?

A. 25.40 million

B. 18.05 million

C. 24.25 million

D. 17.84 million

E. 25.33 million

16.) What is the incremental 25^th year before tax non-operating cash flow?

A. 38.9 million

B. 40 million

C. 43.9 million

D. 42.9 million

E. 40.9 million