Use the Following Information to Answer the Question(s)below

question 76

Multiple Choice

Use the following information to answer the question(s) below.
(Include the MACRS Table from the Appendix. )
Casa Grande Farms is considering purchasing multiple tractors for a total purchase price of $540,000.These tractors are expected to generate EBITDA of $250,000 for each of the next three years.Casa Grande Farms has a 35% tax rate and has a cost of capital of 10%.
-Assume that Casa Grande Farms is planning to sell the tractors after two years,when its book value is $119,988,for a total price of $180,000.What is the effect on free cash flow in the year it is sold?

• A)A cash inflow of $60,012
• B)A cash outflow of $60,012
• C)A cash inflow of $39,008
• D)A cash outflow of $39,008

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Definitions:

Equity Funds

Investment funds that primarily invest in stocks, aiming to provide investors with growth or income through dividends and capital gains.

Borrowed Funds

Money that an entity obtains from another party with the promise to return the principal amount along with interest.

Present Value

The present value of a sum of money or series of cash flows expected in the future, discounted at a certain rate of return.

Net Present Value

The discrepancy between incoming and outgoing cash flows' current worth over a certain timeframe, utilized in long-term investment planning to evaluate an investment's profit potential.