1. Pine Furniture is considering spending $22,000 at Time 0 to test a new product. Depending on the test results, the firm may decide to spend $84,000 at Time 1 to start production of the product. If the product is introduced and it is successful, it will produce aftertax cash flows of $95,000 a year for Years 2 through 4. The probability of successful test and investment is 65 percent. What is the net present value at Time 0 given a 15 percent discount rate?
$44,681
$47,803
$50,250
$53,121
$56,478
2. Haverhill, Inc. is analyzing a proposed 3-year project using standard sensitivity analysis. The company expects to sell 10,000 units, ±4 percent. The expected variable cost per unit is $6 and the expected fixed costs are $32,000. The fixed and variable cost estimates are considered accurate within a ±5 percent range. The sales price is estimated at $15 a unit, ±6 percent. The project requires an initial investment of $144,000 for equipment that will be depreciated using the straight-line method to zero over the project's life. The equipment can be sold for $25,000 at the end of the project. The project requires $13,500 in net working capital for the three years. The discount rate is 14 percent and tax rate is 34 percent. What is the operating cash flow in year 2 under the optimistic case scenario?
$74,865.47
$70,436.12
$66,268.80
$62,211.88
$59,605.34