Expected Cash Flows: FireRock Wheel Corp Is Evaluating a Project

question 64

Multiple Choice

Expected cash flows: FireRock Wheel Corp is evaluating a project in which there is a 40 percent probability of revenues totaling $3 million and a 60 percent probability of revenues totaling $1 million per year. Its cash expenses will be $1.0 million while depreciation expense will be $200,000; then what is the expected free cash flow from taking the project if the marginal tax rate for the firm is 30 percent?

• A) $200,000
• B) $420,000
• C) $600,000
• D) $620,000

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Definitions:

Overapplied Manufacturing Overhead

A condition where the allocated manufacturing overhead costs exceed the actual overhead expenses incurred.

Cost of Goods Sold

Cost of goods sold represents the direct costs attributable to the production of the goods sold by a company, including material and labor costs.

Predetermined Overhead Rate

A rate used to allocate overhead costs to products or jobs, computed before the costs are incurred, based on estimated rather than actual costs.

Direct Labor-Hour

Direct labor-hour is a measure of the time workers spend on specific tasks directly involved in the production of goods.