Reference no: EM132712978

You are evaluating a project for the Tiff-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiffany to be $400 per unit and sales volume to be 1,000 units in year 1; 1,500 units in year 2; and 1,325 units in year 3. The project has a 3-year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 in assets, which will be depreciated straight-line to zero over the 3-year project life. The actual market value of these assets at the end of year 3 is expected to be $35,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year.

Problem 1: The tax rate is 34 percent and the required return on the project is 10 percent. What change in NWC occurs at the end of year 1?