A Project Has a Seven-Year Life and an Initial Investment $\pm$

question 268

Multiple Choice

A project has a seven-year life and an initial investment of $228,700 in equipment. The equipment will be depreciated straight-line to zero over seven years. Fixed costs are $124,600. Variable costs are $8.16 per unit. Sales are estimated at 54,500 units at an average price of $11.99. The estimated ranges of each variable are: sales quantity $\pm$ 15%; sales price $\pm$ 2%; variable cost $\pm$ 10%; and fixed costs $\pm$ 4%. The tax rate is 35%. Under the worst-case scenario, what is the operating cash flow?

• A) -$54,602
• B) -$21,931
• C) -$12,878
• D) $10,740
• E) $22,549

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Definitions:

Earth's Crust

The outermost solid shell of a rocky planet, dwarf planet, or natural satellite, which is chemically distinct from the underlying mantle.

Chattel

Personal property which is movable, as opposed to real property or real estate.

Firmly Attached

Pertains to property or equipment that is fixed or securely fastened to a location or structure, often impacting legal status or taxation.

Joint Tenancy

A form of co-ownership where two or more persons hold equal shares of a property with rights of survivorship, meaning when one owner dies, their share automatically passes to the remaining owner(s).