Use the Information for the Question(s)below

question 86

Multiple Choice

Use the information for the question(s) below.
Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane.THSI will lease space in this facility to various agencies and groups providing relief services to the area.THSI estimates that this project will initially cost $5 million to set up and will generate $20 million in revenues during its first and only year in operation (paid in one year) .Operating expenses are expected to total $12 million during this year and depreciation expense will be another $3 million.THSI will require no working capital for this investment.THSI's marginal tax rate is 21%.
-Ignoring the original investment of $5 million,what is THSI's free cash flow for the first and only year of operation?

• A)$5.0 million
• B)$3.75 million
• C)$8.0 million
• D)$6.95 million

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