MATH 246 Final: Practice Final Solutions Fall 2008
14 Mar 2019
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You are the president of a large company that is evaluating a potential new project. Your staff hand you the following set of projections for revenues, costs of goods sold (which are a fixed percentage of revenues), and administrative expenditures. The project will generate revenues in years one through four, then be terminated. The administrative expenses in year zero are for a large advertising effort that will take place the year before the product is offered for sale. Your staff projects that the advertising effort will have to be repeated two years later. It will require an adjustment to net working capital. The required net working capital in year t is 20 percent of the expectation, as of year t, of revenues in year t+1. The opportunity cost of capital for this project is 10 percent. Cash flow year zero is minus 2mm of expenses and minus 0. 2*10mm of change in.
