Use the following to answer questions 31-35:

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 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 3 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, which is depreciated straight-line to zero over the 3 year project life. The actual market value of the initial investment at the end of year 3 is $35,000. Initial net working capital investment is $75,000 and NWC will maintain a level equal to 20% of sales for the same year thereafter. The tax rate is 34% and the required return on the project is 10%.

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

A) $13,200

B) $15,000

C) $20,000

D) $44,000

E) $52,000

32. Given the $75,000 initial investment in NWC, what change occurs for NWC during year 1?

A) There is no change in NWC.

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

C) There is a $5,000 decrease in NWC.

D) There is an $80,000 increase in NWC.

E) There is an $80,000 decrease in NWC.

33. What is the operating cash flow for the project in year 2?

A) $ 26,400

B) $ 68,200

C) $ 97,075

D) $101,210

E) $105,738

34. What is the effect of the $35,000 salvage value on year 3 cash flows?

A) There is no effect; the salvage value is a noncash event.

B) Cash flows are increased $11,900.

C) Cash flows are increased $23,100.

D) Cash flows are increased $35,000.

E) Salvage value does not affect incremental cash flow.

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

A) $126,461

B) $178,156

C) $194,945

D) $228,838

E) $234,838