You Are Evaluating a Project for Your Company

question 96

Multiple Choice

You are evaluating a project for your company. You estimate the sales price to be $500 per unit and sales volume to be 2000 units in year 1; 3000 units in year 2; and 1500 units in year 3. The project has a three-year life. Variable costs amount to $300 per unit and fixed costs are $200,000 per year. The project requires an initial investment of $325,000 in assets that will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $50,000. NWC requirements at the beginning of each year will be approximately 25 percent of the projected sales during the coming year. The tax rate is 34 percent and the required return on the project is 12 percent. What is the operating cash flow for the project in year 2?

• A)$74,167
• B)$192,500
• C)$300,833
• D)$374,500

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Definitions:

Psychological Apathy

A state of indifference where an individual shows lack of interest, enthusiasm, or concern towards emotional, social, or physical life.

Daily Life

The routine or regular activities and experiences that make up an individual's everyday existence.

Emotional Stake

Refers to the level of personal investment or interest one has in a particular situation or outcome.

Developmental Stake

A hypothesis that suggests parents and children view their relationship differently, with parents invested in continuity and children emphasizing change.