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ou are evaluating a project for The Ultimate recreational tennisracket, guaranteed to correct that wimpy backhand. You estimate thesales price of The Ultimate to be $400 per unit and sales volume tobe 1,000 units in year 1; 1,250 units in year 2; and 1,325 units inyear 3. The project has a 3-year life. Variable costs amount to$225 per unit and fixed costs are $100,000 per year. The projectrequires an initial investment of $165000 in assets, which will bedepreciated straight-line to zero over the 3-year project life. Theactual market value of these assets at the end of year 3 isexpected to be $35,000. NWC requirements at the beginning of eachyear will be approximately 20 percent of the projected sales duringthe coming year. The tax rate is 21 percent and the required returnon the project is 10 percent. (Use SL depreciation table)
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