Margarite's Enterprises Is Considering a New Project

question 157

Multiple Choice

Margarite's Enterprises is considering a new project. The project will require $325,000 for new fixed assets, $160,000 for additional inventory and $35,000 for additional accounts receivable.
Accounts payable is expected to increase by $100,000 and long-term debt is expected to increase
By $300,001. The project has a 5-year life. The fixed assets will belong in a 30% CCA class. At the
End of the project, the fixed assets can be sold for 25% of their original cost. The net working
Capital returns to its original level at the end of the project. The project is expected to generate
Annual sales of $554,000 and costs of $430,001. The tax rate is 35% and the required rate of return
Is 15%.
What is the cash flow recovery from net working capital at the end of this project?

• A) $95,000
• B) $147,812
• C) $195,000
• D) $247,812
• E) $295,000

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Definitions:

Sales Dollars

The total monetary value of sales within a specific time period.

Home Division

A segment or branch of a company that operates in the headquarters' country, focusing on domestic operations or products.

Commercial Division

A segment within a company that is focused on the selling and distribution of goods or services.

Fixed Expenses

Costs that do not change with the level of production or sales over a certain period, such as rent or salaries.