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:

Cross-hedging

An investment strategy used to manage risk by investing in assets indirectly related to the primary exposure.

Hedging

A risk management strategy used to limit or offset the probability of loss from fluctuations in the prices of commodities, currencies, or securities.

Closely Related

Closely Related describes items, individuals, or concepts that are closely connected in terms of characteristics, functions, or relationships.

Forward Contract

An agreement between two entities to purchase or sell a certain asset at a specified price and date in the future.