Use the following information to answer questions 19-21.

You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the sales price of The Ultimate to be $400 per unit, and sales volume to be 1,000 units in year 1, 1,250 units in year 2, and 1,325 units in year 3. The project has a three-year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 on machinery which is depreciated straight-line to zero over the three-year project life. The actual market value of the machinery at the end of year 3 is $35,001. Initial net working capital investment is $75,000 and NWC will maintain a level equal to 20% of sales each year thereafter. The tax rate is 34% and the required return (i.e. the discount rate) on the project is 10%.

19. What is EBIT for the project in the first year?

Select one:

a. $20,000

b. $15,000

c. $44,000

d. $13,200

e. $52,000

Question 20

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

Select one:

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

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

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

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

e. There is no change in NWC.

Question 21

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What is the total cash flow for the project in year 3?

Select one:

a. $178,156

b. $194,945

c. $234,838

d. $239,100

e. $126,461