BASIC INFORMATION: a Three-Year Project Will Cost $60,000 to Construct

question 286

Multiple Choice

BASIC INFORMATION: A three-year project will cost $60,000 to construct. This will be depreciated straight-line to zero over the three-year life. The price per unit sold is $20 and the variable cost per unit sold is $10. Fixed costs are $30,000 per year.

Using the BASIC INFORMATION only, if you expect to sell 7,000 units per year, what is the OCF in year 2 assuming a required return of 15% and a tax rate of 30%?

• A) $17,000
• B) $20,000
• C) $34,000
• D) $48,000
• E) $55,000

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Definitions:

Rate Of Return

The gain or loss of an investment over a specified period, expressed as a percentage.

Cash Flow Growth Rate

A measure of how fast a company's cash flow increases over a certain period, indicating financial health.

Timeframe

A timeframe refers to the specific period during which an event occurs or is planned to take place, often used in planning and scheduling contexts.

Required Rate Of Return

The lowest annual gain percentage that persuades individuals or firms to allocate resources to a particular security or project.