You Are Analyzing a Project and Have Developed the Following

question 103

Multiple Choice

You are analyzing a project and have developed the following estimates.The depreciation is $47,900 a year and the tax rate is 35 percent.What is the worst-case operating cash flow? $$\begin{array} { | l | r | r | r | } \hline & \text { Base-Case } & \text { Lower Bound } & \text { Upper Bound } \\\hline \text { Unit sales } & 11,300 & 9,800 & 12,800 \\\hline \text { Sales price per unit } & \$ 39 & \$ 34 & \$ 44 \\\hline \text { Variable cost per unit } & \$ 25 & \$ 24 & \$ 26 \\\hline \text { Fixed costs } & \$ 9,700 & \$ 9,200 & \$ 10,200 \\\hline\end{array}$$

• A)-$2,545
• B)$11,145
• C)$88,855
• D)$27,556
• E)$61,095

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Definitions:

Accrued Product Warranty Expense

An expense that represents the estimated cost of warranty claims on products sold that have not yet been claimed.

Insurance Co.

Abbreviation for Insurance Company, which is a business entity that provides coverage, in the form of compensation resulting from loss, damages, injury, treatment or hardship in exchange for premium payments.

Pension Plan

A pension scheme where an employer is obligated to contribute to a fund dedicated for an employee's benefit upon retirement.

Hazardous Materials

Substances that pose risks to public health, safety, or the environment if not properly controlled or contained.