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

question 78

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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