You Are Evaluating a Project for Your Company

question 112

Multiple Choice

You are evaluating a project for your company. You estimate the sales price to be $10 per unit and sales volume to be 3,000 units in year 1; 10,000 units in year 2; and 1000 units in year 3. The project has a three-year life. Variable costs amount to $3 per unit and fixed costs are $25,000 per year. The project requires an initial investment of $50,000 in assets which will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $10,000. NWC requirements at the beginning of each year will be approximately 25 percent of the projected sales during the coming year. The tax rate is 34 percent and the required return on the project is 15 percent. What is the operating cash flow for the project in year 2?

• A) $18,700
• B) $18,867
• C) $35,367
• D) $40,317

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Definitions:

Moral Judgment

The process of determining the ethical or moral righteousness of certain actions, decisions, or behaviors based on a set of societal or personal standards.

Prison

A facility in which individuals are forcibly confined and denied a variety of freedoms under the authority of the state as a form of punishment following the commission of a crime.

Labeling Theory

A theory in sociology that suggests the labels or definitions applied to individuals can significantly influence their behavior and the perception of them by others, often resulting in self-fulfilling prophecies.

David Rosenhan

An American psychologist best known for his experiment that challenged the validity of psychiatric diagnoses, published as "On Being Sane in Insane Places."