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

question 57

Multiple Choice

FAR Corporation
FAR Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $150,000. The cost of shipping and installation is an additional $15,000. 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 $300,000 per year. Cost of goods sold will be 80% of sales. The project will require an increase in net working capital of $15,000. At the end of three years, FAR plans on ending the project and selling the manufacturing equipment for $35,000. The marginal tax rate is 40% and FAR Corporation's appropriate discount rate is 12%.
-Refer to FAR Corporation.What is the operating cash flow for year 1?

• A) $55,470
• B) $60,000
• C) $48,798
• D) $37,686

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Definitions:

Notice

A formal communication or announcement given to a party, usually in writing, about an action or condition.

UCC

A comprehensive set of laws governing all commercial transactions in the United States, intended to harmonize the law of sales and other commercial transactions across American states.

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A legal term for someone who has acquired a negotiable instrument, like a check, in good faith and is entitled to payment.