Margarite's Enterprises Is Considering a New Project

question 37

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. Short-term debt is expected to increase by $100,000 and long-term debt is expected to increase by $300,000. The project has a 5-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. 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 $430,000. The tax rate is 35% and the required rate of return is 15%. What is the amount of the earnings before interest and taxes for the first year of this project?

• A) $38,500
• B) $59,000
• C) $67,000
• D) $76,500
• E) $159,000

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Definitions:

Turnover Rates

The ratio or percentage of employees leaving a company during a certain period, which could indicate the overall health of the organization or its work environment.

Autonomy

The degree to which a job provides an employee with the discretion and independence to schedule their work and determine the procedures to be used in carrying it out.

Procedural Justice

The perception of fairness in the processes and methods used to make decisions and allocate resources.

Morality Standards

Principles or norms concerning the distinction between right and wrong or good and bad behavior.