Margarite's Enterprises Is Considering a New Project That Will Require

question 73

Multiple Choice

Margarite's Enterprises is considering a new project that will require $345,000 for new fixed assets,$160,000 for inventory,and $35,000 for accounts receivable.Short-term debt is expected to increase by $110,000.The project has a 5-year life.The fixed assets will be depreciated straight-line to zero over the life of the project.At the end of the project,the fixed assets can be sold for 25 percent of their original cost.The net working capital returns to its original level at the end of the project.The project is expected to generate annual sales of $550,000 and costs of $430,000.The tax rate is 35 percent and the required rate of return is 15 percent.
What is the amount of the earnings before interest and taxes for the first year of this project?

• A)$38,500
• B)$51,000
• C)$67,000
• D)$76,500
• E)$159,000

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Definitions:

Adjusting Entries

Journal entries made at the end of an accounting period to allocate revenue and expenses to the period in which they actually occurred.

Accounts

Records within an accounting system that are used to store and summarize transactions related to specific assets, liabilities, equity, revenue, and expenses.

Financial Statements

Reports that summarize the financial performance and position of a company, including the balance sheet, income statement, and cash flow statement.

Trial Balance

A bookkeeping report that lists the balances of all ledgers and accounts to check that debits equal credits.