Use the Information for the Question(s)below

question 39

Multiple Choice

Use the information for the question(s) below.
Epiphany Industries is considering a new capital budgeting project that will last for three years. Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projects:

-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 be depreciated using the straight-line method over four years. What is the expected free cash flow in the second year of the project if the firm's marginal tax rate is 30%?

• A)$225 000
• B)$245 000
• C)$195 000
• D)$162 500

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Definitions:

Labor Hire

The process of employing individuals or workers, typically for temporary or contractual tasks or projects.

Elastic Supply

Elastic supply refers to a situation where the quantity of goods supplied to the market can quickly increase or decrease in response to changes in price.

Short Run

A period in which at least one input is fixed and cannot be changed by the firm.

Marginal Product of Labor

The extra output produced by adding one more unit of labor, holding other inputs constant.