Use the Information for the Question(s)below

question 62

Multiple Choice

Use the information for the question(s) below.
Temporary Housing Services (THS) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a cyclone. THS will lease space in this facility to various agencies and groups providing relief services to the area. THS estimates that this project will initially cost $6 million to set up and will generate $22 million in revenues during its first and only year of operation (paid in one year) . Operating expenses are expected to total $13 million during this year and depreciation expense will be another $4 million. THS will require no working capital for this investment. THS's marginal tax rate is 30%.
-Ignoring the original investment of $6 million, what is THS's free cash flow for the first and only year of operation?

• A)$6.0 million
• B)$6.75 million
• C)$7.5 million
• D)$8.0 million

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Definitions:

Sampling Distribution

A distribution showing the chances of different outcomes for a statistic, which is generated from a significant amount of samples from a certain population.

Sample Size

The number of individuals or observations used in a sample to estimate characteristics of an entire population.

Point Estimate

A single value given as an estimate of a population parameter that is unknown.

Population Parameter

A numerical value that describes a characteristic of an entire population, such as the mean or standard deviation.