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