Use the Information for the Question(s) Below -The Free Cash Flow for the Last Year of Epiphany's

question 37

Multiple Choice

Use the information for the question(s) below.
Epiphany Industries is considering a new capital budgeting project that will last for three years. Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projects:
$\begin{array}{lrrr}\hline\text { Year }&0&1&2&3\\\hline \text { Sales (Revenues) } && 100,000 & 100,000 & 100,000 \\\hline \text { - Cost of Goods Sold (50\% of Sales) } && 50,000 & 50,000 & 50,000 \\\hline \text { - Depreciation } && 30,000 & 30,000 & 30,000 \\\hline \text { = EBIT } && 20,000 & 20,000 & 20,000 \\\hline \text { - Taxes }(30 \%) && 6000 & 6000 & 6000 \\\hline \text { = unlevered net income } && 14,000 & 14,000 & 14,000 \\\hline \text { + Depreciation } && 30,000 & 30,000 & 30,000 \\\hline+ \text { changes to working capital } && -5000 & -5000 & 10,000 \\\hline \text { - capital expenditures } & -90,000\\\hline\end{array}$
-The free cash flow for the last year of Epiphany's project is closest to:

• A) $54,000
• B) $35,000
• C) $43,000
• D) $39,000

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Definitions:

Labor Efficiency Variance

The difference between the actual hours worked and the standard hours allowed for the work performed, multiplied by the standard labor rate.

Standard Hours

The estimated time that should be taken to complete a task or produce a unit under normal conditions.

Actual Labor-Hours

Actual labor-hours represent the real number of labor hours worked by employees, as opposed to planned or estimated hours, often used in productivity and costing analyses.

Direct Material Standards

The anticipated cost and quantity of materials required for the production of goods or services.