Answer Happy

You are evaluating a project for The Mzansi golf club. You estimate the sales price of The Mzansi GF to be R400 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 R225 per unit and fixed costs are R100,000 per year. The project requires an initial investment of R165,000 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 R35,000. Net working capital (NWC) requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. What change in net working capital (NWC) occurs at the end of the first year? R60,000 decrease R40,000 decrease R120,000 increase R40,000 increase