Question
1. A sports game company with current sales of $400,000 does not expect any growth in sales for the next two years. The company, however,
1. A sports game company with current sales of $400,000 does not expect any growth in sales for the next two years. The company, however, anticipates that expenses, currently at $200,000, will increase to $210,000 next year and to $220,500 the year after. Assuming a tax rate of 34%, determine the firms cash flow in year two. Assume annual depreciation is $20,000.
A. $112,360
B. $125,270
C. $145,890
D. $178,330
2. Which of the following comes closest to profitability index (PI) of a project that requires an initial investment of $800 and produces a single cash flow of $1,200 at the end of year 4 if the required rate of return is 5%?
A. | 0.92 | |
B. | 1.23 | |
C. | 1.66 | |
D. | 2.05 |
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