You Have Been Asked by the President of Your Company

question 117

Multiple Choice

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $250,000. The truck falls into the MACRS three-year class, and it will be sold after three years for $50,000. Use of the truck will require an increase in NWC (spare parts inventory) of $5,000. The truck will have no effect on revenues, but it is expected to save the firm $80,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the operating cash flow for this project be during year 3?

• A) $25,785
• B) $70,975
• C) $81,333
• D) $85,025

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Definitions:

Glycolysis

A metabolic pathway occurring in the cytoplasm of cells where glucose is broken down to produce energy in the form of ATP.

Citric Acid Cycle

A sequence of chemical reactions used by all aerobic organisms to release stored energy through the oxidation of acetyl-CoA derived from carbohydrates, fats, and proteins.

GDP

Stands for Gross Domestic Product, a measure of the economic performance of a country, representing the total value of all goods and services produced over a specific time period.

Phosphorylated

Describes a molecule that has undergone phosphorylation, the addition of a phosphate group, often modifying its function or activity.