**The following information is needed to answer questions #4-10** Blue Bison Corporation is considering development of a user- friendly online test

**The following information is needed to answer questions #4-10**
    Blue Bison Corporation is considering development of a user-
friendly online test bank which would make all old exams for
    sections of Finance 405 taught in the past 5 years available
    to students for study and preparation. Under current budget
    crisis circumstances, however, students would have to pay a
    $250 one-time fee to gain database access. Still, the demand
    forecast by an $89,000 independent marketing firm survey is
    expected to be brisk across the technology’s four-year life:
    1150 units in year one; 1380 units in the second year; 1600
    subscriptions are expected in year three; 1425 in year four.
    Due to techno-compatibility issues, project adoption would
    force delayed sale of near-obsolete servers until EOY four,
    which are estimated to have a market value of $ 25,000.
    Fixed costs will equal $68,000 per year; and variable costs
    are forecast at $115 per unit. Physical equipment (PP&E) t=0
    initial outlays will require $276,000, to be depreciated on
    straight-line basis to zero book value at end-of-year four.
    However, actual salvage value of server & related machinery
    is predicted to be $32,000 at that time. The project has an
    initial(t=0) working capital requirement of $35,000; added
    infusions may be needed each year to maintain overall NWC
    stockpiles at 15% of annual subscription sales. Blue Bison
    faces a 36% marginal corporate tax rate; its project cost of
    capital(discount rate) is expected to be equal to 14%.
4. Test Bank project EBIT forecast for year four equals:
5. What is operating cash flow (OCF) expected in year three?
6. Changes in Net Working Capital expected in year two are:
7. The after-tax salvage value (ATSV) of the project’s assets is:
8/9. What’s the net present value(NPV) of the Test Bank project?  
10. According to the “NPV rule”, the Test Bank project:
  a. should be rejected, since it has a negative NPV
b. adds to Blue Bison firm value, and thus should be accepted
c. has a misleading accept/reject signal, due to ususal CF’s
d. if accepted, would be a project consistent with SWM
e. haven’t the foggiest… but sure sounds like a good idea
explanation with working would be appreciated. Thank you.
 
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