A Proposed Three-Year Project Will Require $589,000 for Fixed Assets

question 89

Multiple Choice

A proposed three-year project will require $589,000 for fixed assets, $79,000 for inventory, and $43,000 for accounts receivable. Accounts payable are expected to increase by $47,000. The fixed assets will be depreciated straight-line to a zero book value over five years. No bonus depreciation will be taken. At the end of the project, the fixed assets can be sold for $225,000. The net working capital returns to its original level at the end of the project. The operating cash flow per year is $67,900. The tax rate is 21 percent and the discount rate is 12 percent. What is the total cash flow in the final year of the project?

• A) $364,190
• B) $361,000
• C) $370,126
• D) $378,970
• E) $369,770

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Definitions:

Actual Reserves

The physical amount of a commodity or cash held as reserves in a financial institution or by an organization.

Monetary Policy

Measures undertaken by a government's central bank to regulate the economy's money supply and interest rates to achieve macroeconomic objectives like controlling inflation, consumption, growth, and liquidity.

President

The head of state and government in a republic, often elected to lead the executive branch and uphold the laws and constitution of the nation.

Monetary Policy

Actions undertaken by a central bank, such as managing interest rates and controlling the money supply, to influence economic activity.