Your company is developing a new textbook for FIN 301 and you paid your current FIN 301 instructor $600,000 for his input about the feasibility of such a product.

The project would involve initial capital investment of $900,000 and installation costs related to the capital expenditures of $300,000. The project would also necessitate an increase in net working capital of $500,000 at the beginning of the project.

You can straight line depreciate any depreciable expenses to zero over the three-year life of the project, and you dont expect the capital investment to be sold at the end of the project.

Each year, you estimate you will receive $2,000,000 in sales revenue from your awesome textbook. Variable product and selling costs associated with these sales are expected to be 30% of revenue in each of those years. The fixed costs in each of the three years of the project will be $400,000. The corporate tax rate is 40%.

Calculate the total year 0 cash flows associated with the project.

$nothing

Calculate the year 1 EBIT.

$nothing

Calculate the TOTAL year 1 cash flows associated with the project.

$nothing

Calculate the TOTAL year 3 cash flows associated with the project.

$nothing

If you used the NPV method of evaluating this project, and you only accepted projects that pay back within two years, what would you do?

A.

Indifferent between accept and reject

B.

Unable to determine from information given

C.

Reject

D.

Accept