Epiphany Industries Is Considering a New Capital Budgeting Project That

question 86

Multiple Choice

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: The free cash flow for the first year of Epiphany's project is closest to ________.

• A) $45,600
• B) $28,500
• C) $38,000
• D) $53,200

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Definitions:

Variable Costs

Costs that vary directly with the level of production or business activity, such as materials and labor.

Contribution Margin Ratio

The proportion of sales revenue that exceeds variable costs, representing the amount contributing to covering fixed costs and generating profit.

Operating Income

Earnings generated from a company's core business operations, excluding expenses and revenues that are not related to the primary activities.

Variable Costs

Variable costs are expenses that change in proportion to the activity of a business, such as sales volume or production levels.