Umbrella Corporation is considering a 5 year expansion project that requires an initial fixed asset investment of $2.5 million. The fixed asset will be depreciated using on a straight-line basis to zero over its five year life. The fixed asset will be sold for $425,000 at the end of the project. The project requires an initial investment in net working capital of $325,000. The working capital will be recovered at the end of the projects life. The project is estimated to generate $2,250,000 in annual sales, with costs of $750,000. The tax rate is 35 percent.

1. Calculate the initial investment:

A) $2,675,000

B) $3,000,000

C) $3,325,000

D) $2,825,000

2. Calculate the cash flows in year 1:

A) $1,150,000

B) $1,185,000

C) $585,000

D) $1,500,000

3. Calculate the total amount of cash flows that take place in year 5 on this project:

A) $675,000

B) $601,250

C) $447,520

D) $1,751,250