Whitestone Products Is Considering a New Project Whose Data Are

question 23

Multiple Choice

Whitestone Products is considering a new project whose data are shown below.The required equipment has a 3-year tax life, and the accelerated rates for such property are 33.33%, 44.45%, 14.81%, and 7.41% for Years 1 through 4.Revenues and other operating costs are expected to be constant over the project's 10-year expected operating life.What is the project's Year 4 cash flow? $\begin{array}{lr}\text { Equipment cost (depreciable basis) } & \$ 70,000 \\\text { Sales revenues, each year } & \$ 42,500 \\\text { Operating costs (excl. deprec.) } & \$ 25,000 \\\text { Tax rate } & 25.0 \%\end{array}$

• A) $13,016
• B) $13,701
• C) $14,422
• D) $15,143
• E) $15,900

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Definitions:

Profit-Maximizing

A strategy or process aimed at increasing a company's profits to the highest possible level.

Vickrey Auction

A type of sealed-bid auction where the highest bidder wins but pays the price offered by the second-highest bid.

Foreclosed

The judicial procedure that ends an owner's claim to a property, often because of the inability to keep up with mortgage payments.

Expected Revenue

The anticipated amount of money that a business expects to receive from its activities or sales, based on probabilistic assessment of future sales.