Question
You are evaluating a project for your company. You estimate the sales price to be $200 per unit and sales volume to be 3,000 units
You are evaluating a project for your company. You estimate the sales price to be $200 per unit and sales volume to be 3,000 units in year 1; 4,000 units in year 2; and 2,500 units in year 3. The project has a three-year life. Variable costs amount to $50 per unit and fixed costs are $150,000 per year. The project requires an initial investment of $200,000 in assets which will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $30,000. NWC requirements at the beginning of each year will be approximately 10 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 10 percent. What is the operating cash flow for the project in year 2?
You are evaluating a product for your company. You estimate the sales price of product to be $140 per unit and sales volume to be 10,400 units in year 1; 25,400 units in year 2; and 5,400 units in year 3. The project has a 3 year life. Variable costs amount to $65 per unit and fixed costs are $204,000 per year. The project requires an initial investment of $336,000 in assets which will be depreciated straight-line to zero over the 3 year project life. The actual market value of these assets at the end of year 3 is expected to be $44,000. NWC requirements at the beginning of each year will be approximately 13% of the projected sales during the coming year. The tax rate is 21% and the required return on the project is 8%. What will the year 2 free cash flow for this project be?
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