A Project Requires an Initial fiXed Asset Investment of $600,000

question 187

Multiple Choice

A project requires an initial fixed asset investment of $600,000, which will be depreciated straight- line to zero over the six-year life of the project. The pre-tax salvage value of the fixed assets at the
End of the project is estimated to be $50,001. Projected sales volume for each year of the project is
Shown below. The sale price is $50 per unit for the first three years, and $45 per unit for years 4
Through 1. A $30,000 initial investment in net working capital is required, with additional
Investments equal to 7.5% of annual sales for each year of the project. Variable costs are $35 per
Unit, and fixed costs are $50,000 per year. The firm has a tax rate of 34% and a required return on
Investment of 12%. What is the operating cash flow during year 5 of the project?

• A) $66,429
• B) $107,426
• C) $117,406
• D) $162,132
• E) $189,025

---

Definitions:

Income Statement

A financial statement that shows a company's revenues, expenses, and profits or losses over a specific period, providing insights into its operational efficiency.

Retail Business

A business type that sells goods or services directly to end consumers.

Gross Profit

The difference between sales revenue and the cost of goods sold, representing the core profitability of a company's products or services before deducting operating expenses.

Inventory Included

This refers to all items of merchandise, raw materials, work-in-progress, and finished goods that a company holds for the purpose of sale or production.