Question
XYZ Corporation is considering a new product line. They believe the new product can be sold for $10 per unit and will have the following
XYZ Corporation is considering a new product line. They believe the new product can be sold for $10 per unit and will have the following demand over the next 3 years: 10,000 units in year 1, 15,000 in year 2 and 17,000 in year three. The incremental costs of these products will consume 50% of the sale price. The new line will require a machine be purchased today for $60,000 and depreciated using the straight line method over the life of the machine with a salvage value of zero. The project will utilize $30,000 in net working capital and the companys tax rate is 30%. Which of the following are true regarding the projects relevant cash flows for year 0, 1, 2, 3.
Select one:
a. I, II & III are correct
b. III. The companys cash flow in year 3 is 65,500
c. II & III are correct
d. II. The companys cash flow in year 1 is $41,000
e. I. The companys year zero cash flow is (-$60000)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started