A Project Requires the Purchase of $587,000 of Equipment That

question 103

Multiple Choice

A project requires the purchase of $587,000 of equipment that will be depreciated straight-line to a zero book value over the four-year life of the project. The equipment can be scraped at the end of the project for 33 percent of its original cost. Annual sales from this project are estimated at $625,000 with cash expenses of $487,000. Net working capital equal to 12 percent of sales will be required to support the project. The required return is 13 percent and the tax rate is 21 percent. What is the cash flow in Year 2 of the project? Ignore bonus depreciation.

• A) $91,080
• B) −$55,670
• C) $139,838
• D) $105,560
• E) −$5,775

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Definitions:

Behavioral Consistency

The tendency of an individual to exhibit the same behaviors across different situations and over time.

Individual's Behavior

Actions or reactions of a person in response to external or internal stimuli.

Lab Observations

The process of watching subjects in a controlled environment to gather data, often used in experimental studies.

Person-Situation Interaction

The theoretical analysis of how people behave in different situations and how personal characteristics interact with situational factors to influence behavior.