DSSS Corporation DSSS Corporation Is Considering a New Project to Manufacture Widgets

question 58

Multiple Choice

DSSS Corporation
DSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $125,000. The cost of shipping and installation is an additional $10,000. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $225,000 per year. Cost of goods sold will be 60% of sales. The project will require an increase in net working capital of $10,000. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $25,000. The marginal tax rate is 40% and DSSS Corporation's appropriate discount rate is 15%.
-Refer to DSSS Corporation.What is the operating cash flow for year 1?

• A) $54,797
• B) $64,798
• C) $70,803
• D) $10,487

---

Definitions:

Beta

A measure of a stock's volatility in relation to the overall market.

Required Return

The minimum expected return an investor seeks for holding a risky investment, considering both time value of money and risk factors.

Expected Return

The weighted average of all possible returns from an investment, accounting for the probability of each outcome.

Beta

An indicator of how much a stock's price fluctuates compared to the entire market, showing the level of risk associated with its returns.