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

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Definitions:

Outside Supplier

An external entity or company that provides goods or services to another company, often part of the supply chain.

Idle Capacity

Unused production capacity, indicating available resources that are not currently being utilized.

Transfer Price

Transfer price refers to the price charged for goods or services transferred between departments or divisions within the same company or between affiliated entities.

Valve Division

A specific business unit within a company that focuses on the production and sale of valves.