The Blue Lagoon Is Considering a Project with a Five-Year

question 55

Multiple Choice

The Blue Lagoon is considering a project with a five-year life.The project requires $110,000 of fixed assets that are classified as five-year property for MACRS.Variable costs equal 71 percent of sales,fixed costs are $9,600,and the tax rate is 35 percent.What is the operating cash flow for year 4 given the following sales estimates and MACRS depreciation allowance percentages?

• A)-$1,806
• B)$640
• C)$1,809
• D)$2,342
• E)$2,811

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Definitions:

Opportunity Cost

The cost of foregone alternatives, the value of the best alternative given up when a decision is made to choose one option over another.

Ironing

the process of using a heated tool (iron) to remove wrinkles from fabric, typically garments, enhancing their appearance.

Suppliers

Individuals or businesses that provide goods or services to consumers, businesses, or other organizations.

Households

Units of residence in an economy that include all individuals who live together and make joint economic decisions.