A Firm Is Considering a New Project That Will Generate

question 31

Multiple Choice

A firm is considering a new project that will generate cash revenue of $1,000,000 and cash expenses of $700,000 per year for five years.The equipment necessary for the project will cost $200,000 and will fall under asset class 43 with a CCA rate of 30%.What is the expected free cash flow in the second year of the project if the firm's marginal tax rate is 35%?

• A)$195,000
• B)$162,500
• C)$212,850
• D)$245,000
• E)$161,850

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Definitions:

Total Revenues

The total amount of money generated by a firm from its sales activities before any costs or expenses are subtracted.

Price Elasticity

A measure of how the quantity demanded or supplied of a good changes in response to a change in its price, indicating the sensitivity of consumers or producers to price changes.

Elastic

Describing a situation where the demand or supply for a product responds significantly to changes in price.

OPEC

The Organization of the Petroleum Exporting Countries, an intergovernmental organization of 13 oil-producing nations that collaborate to manage the supply and set the price of oil.