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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)

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