Task1. Hollister and Hollister are considering the new project. The project will need $522,000 for new fixed assets, $218,000 for additional inventory, and $39,000 for additional accounts receivable. Short-term debt is anticipated to rise by $165,000. The project has a six year life. The fixed assets will be depreciated straight-line to the zero book value over the life of project. At the end of project, fixed assets can be sold for 20 percent of their original cost. The net working capital returns to its original level at the end of project. The project is anticipated to generate annual sales of $875,000 and costs of $640,000. The tax rate is 34 percent and the required rate of the return is 14 percent.
Question1. What is project's cash flow at time zero?
a. -944,000
b. -614,000
c. -779,000
d. -720,000
e. -536,000
Question2. What is cash flow recovery from net working capital at the end of this project?
a. 344,000
b. 14,000
c. 75,000
d. 92,000
e. 422,000