Use the Information for the Question(s)below

question 59

Multiple Choice

Use the information for the question(s) below.
Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy,with each outcome being equally likely.The initial investment required for the project is $80,000,and the project's cost of capital is 15%.The risk-free interest rate is 5%.
-Suppose that to raise the funds for the initial investment the firm borrows $40,000 at the risk-free rate and issues new equity to cover the remainder.In this situation,the cash flow that equity holders will receive in one year in a strong economy is closest to:

• A)$117,000.
• B)$75,000.
• C)$50,000.
• D)$0.

---

Definitions:

Units Manufactured

The total number of units produced by a manufacturing process within a specific period.

Net Income

The total earnings of a company after subtracting all expenses, including taxes and operating costs, from its total revenues.

Selling Expenses

Costs associated with marketing and selling a company's products or services, excluding manufacturing costs.

Manufacturing Overhead

All indirect costs associated with the manufacturing process, including costs related to utilities, maintenance, and factory equipment.