Clemson Software Is Considering a New Project Whose Data Are

question 11

Multiple Choice

Clemson Software is considering a new project whose data are shown below.The required equipment has a 3-year tax life,after which it will be worthless,and it will be depreciated by the straight-line method over 3 years.Revenues and other operating costs are expected to be constant over the project's 3-year life.What is the project's Year 1 cash flow? Do not round the intermediate calculations and round the final answer to the nearest whole number. $$\begin{array} { l r } \text { Equipment cost (depreciable basis) } & \$ 97,000 \\\text { Straight-line depreciation rate } & 33.333 \% \\\text { Sales revenues, each year } & \$ 60,000 \\\text { Operating costs (excl. depr.) } & \$ 25,000 \\\text { Tax rate } & 35.0 \%\end{array}$$
?

• A) $31,682
• B) $29,979
• C) $30,660
• D) $36,792
• E) $34,067

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Definitions:

Annual Coupon

The interest payment made to bondholders once a year, based on the bond's face value.

Yield To Maturity

The complete return expected from holding a bond until it reaches its maturity.

Market Price

The price for an asset or service in the market at the present time.

Interest Rate Risk

The risk that changes in interest rates will negatively affect the value of an investment, especially those with fixed interest rates.