Consider a Capital Expenditure Project with an Expected 10-Year Economic

question 38

Multiple Choice

Consider a capital expenditure project with an expected 10-year economic life and forecasted revenues equal to $40,000 per year; cash expenses are estimated to be $29,000 per year. The cost of the project equipment is $23,000, and the equipment's estimated salvage value at the end of the project is $9,000. The equipment's $23,000 cost will be depreciated using MACRS depreciation (7-year asset) . The project requires a $7,000 working capital investment in year 0 and another $5,000 in year 5. The company's marginal tax rate is 40%. Calculate the expected net cash flow in year 10 of the project.

• A) $32,000
• B) $27,000
• C) $24,000
• D) $18,000

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Definitions:

Take Home Pay

The net amount of income that an employee receives after deductions like taxes and social security contributions.

Labor Cost

The total expenses incurred by a company to employ workers, including wages, benefits, and taxes.

Employment

Employment is a contractual relationship between an employer and an employee where the employee provides labor or services in exchange for compensation.

Payroll Tax

Contributions demanded from employers or their staff, often pegged to a percentage of the paychecks disbursed to employees.