A Firm Is Considering a New Project That Will Generate

question 98

Multiple Choice

A firm is considering a new project that will generate cash revenue of $1,300,000 and cash expenses of $700,000 per year for five years. The equipment necessary for the project will cost $300,000 and will be depreciated straight line 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 35%?

• A) $374,625
• B) $341,250
• C) $416,250
• D) $499,500

Identify the role and importance of liquidity and liquid assets in a firm.

Understand the concepts of financial leverage and how it affects a firm's capital structure.

Comprehend the principles of financial statements preparation and their interconnections.

Differentiate between book values and market values and understand their significance to financial managers.

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Definitions:

Deposit Today

An amount of money placed into a financial account or investment at the present time.

Cash

Liquid assets that can be used immediately for transactions, including currency and bank balances.

Compound Interest

Interest computed not only on the original amount invested or loaned but also on the interest that has been added to this principal over past periods.

Simple Interest

Interest computed solely on the initial sum, without accumulation through compounding.