Use the Information for the Question(s)below

question 11

Multiple Choice

Use the information for the question(s) below.
Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane.THSI will lease space in this facility to various agencies and groups providing relief services to the area.THSI estimates that this project will initially cost $5 million to set up and will generate $20 million in revenues during its first and only year in operation (paid in one year) .Operating expenses are expected to total $12 million during this year and depreciation expense will be another $3 million.THSI will require no working capital for this investment.THSI's marginal tax rate is 35%.
-Ignoring the original investment of $5 million,what is THSI's free cash flow for the first and only year of operation?

• A)$5.0 million
• B)$3.75 million
• C)$8.0 million
• D)$6.25 million

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Definitions:

Franchisor

An individual or company that grants the license to third parties to conduct business under its trademark, business model, and brand.

Franchise Agreement

A legal, binding contract between a franchisor and franchisee, outlining the terms and conditions for the franchise operation.

Rights

Entitlements or freedoms that are guaranteed by law, social norms, or ethical principles.

Business Organization

An entity formed for the purpose of carrying out commercial enterprise. Such organizations come in different forms including partnerships, corporations, and sole proprietorships.