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Use the following information for the next three questions. You are an analyst in the corporate finance department of Pet Products, Inc. You have been

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Use the following information for the next three questions. You are an analyst in the corporate finance department of Pet Products, Inc. You have been asked to analyze a potential new product to be introduced. The beef- flavored water will be called Meaty Drink. The beef flavoring will be artificial so as to not close the market to vegetarian pets. To date, $125,000 has been spent on product testing in small focus groups. Estimates suggest that sales of $250,000 each year for the next six years are likely (after which time the project will be terminated). Variable costs will be a constant 23% of sales. In terms of its physical pawprint footprint, the entire project can be squeezed into a small portion of a warehouse already in use without detrimentally affecting other projects. The parent company is about half-way through a 99 year lease on the land and warehouse building. With the addition of the new project to the warehouse, some on-going rent costs (which are already being incurred due to existing projects) will be allocated pro rata to the Meaty Drink" project. Because the total annual rent costs are currently $100,000 and the new project represents 20% of the firm, $20,000 of the total rent will be charged against the new project, starting at the end of the first full year (i.e., at time t=1). Other than the rent, there are no other fixed operating costs. New equipment required at the outset will cost $100,000, to be depreciated straight-line to zero over its ten year accounting (and tax) life. You estimate that the equipment can be resold in six years for $60,000. To maintain proper inventory, there will be net working capital requirements of $99,000 (incurred at beginning of the project), all of which will be recaptured at termination. Assume the firm has a tax rate of 40%. What is the total cash flow at the project's beginning (time t=0)? A. +99,000 B. -99,000 O C. -100,000 D. -124,000 E. -225,000 F. -324,000 G. None of these

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