Volume: 52,000 units --- 57,000 units --- 61,000 units
Price: $4.50 per unit --- $4.25 per unit --- $3.85 per unit
Marginal Cost: $3.25 per unit --- $2.50 per unit --- $2.20 per unit
Expected Life of Project: 3 years
Fixed Costs: $14,000 per year
Capital requirement: $100,000 (90% depreciated over the 3-year span)
Market value of equipment in 3 years: $10,000
Charge to Net Working Capital: $30,000 (at t = 0, then recapture at t = 3)
Tax rate: 34%
Risk free rate (3-year): 2.5%
Total Market Return: 9.95%
Project Beta: 2.30
Project Debt/Equity Structure: 0.70
Cost of Debt (pretax): 5.5%
FIND:
1. Project Cash Flow (Use Cash Flow From Assets [CFFA]) in Year 1
A. 110,442
B. 43,860
C.143,860
D. 73,860
2. Project Cash Flow (Use Cash Flow From Assets [CFFA]) in Year 2
A. 36,960
B. 0
C. 6,960
D. 66,960
3. Project Cash Flow (Use Cash Flow From Assets [CFFA]) in Year 3
A. 0
B. 107,349
C. 197,349
D. 37,349