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# RelativeResourceManager;JSESSIONIDVISTA=TCx3Lk3Qm07dcXQv5DQ77JhvPdSwmRG0GMxGd1QXvFbJJB90F5mw!8335216

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Kean University College of Business and Public Administration and Corporate Finance II. Problem 1 Burress Beverages is considering a project where they would open a new facility in Seattle, Washington. The company’s CFO has assembled the following information regarding the proposed project: It would cost \$500,000 today (at t = 0) to construct the new facility. The cost of the facility will be depreciated using the following depreciation schedule: MACRS Depreciation Year Rates 1 0.33 2 0.45 3 0.15 4 0.07 If the company opens the facility, it will need to increase its inventory by \$100,000 at t = 0. \$70,000 of this inventory will be financed with accounts payable. The CFO has estimated that the project will generate the following amount of revenue over the next three years: Year 1 Revenue = \$1.0 million Year 2 Revenue = \$1.2 million Year 3 Revenue = \$1.5 million Operating costs excluding depreciation equal 70% of revenue. The company plans to abandon the facility after three years. At t = 3, the project’s estimated salvage value will be \$200,000. At t = 3, the company will also recover the net operating working capital investment that it made at t = 0.

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