BC Travel Services Is Considering a New Ten-Year Project That

question 56

Multiple Choice

BC Travel Services is considering a new ten-year project that will generate additional sales revenue of $200,000 per year.The associated costs are $120,000 per year.The project is somewhat riskier than the company's current operations, and hence requires a risk premium of 2%.The company's cost of capital is 12% and marginal tax rate is 40%.What is the present value of the after-tax operating cash flows?

• A)$250,374
• B)$271,211
• C)$417,289
• D)$452,018

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Definitions:

Loss on Realization

A financial loss recognized when liquidating assets yields less value than initially recorded on the books.

Income Ratio

A financial metric comparing some form of an entity's income to another, providing insights into financial stability, profitability, or performance.

Capital Account Balances

The amounts recorded in the equity section of the balance sheet, representing owners' contributions and retained earnings in a business.

Liquidation

The process of winding down a company by selling off its assets to pay creditors and distribute any remaining assets to shareholders.