Question
7. (CMA) Garfield Inc. is considering a 10-year capital investment project with forecasted cash revenues of $40,000 per year and forecasted cash operating costs of
7. (CMA) Garfield Inc. is considering a 10-year capital investment project with forecasted cash revenues of $40,000 per year and forecasted cash operating costs of $29,000 per year. The initial cost of the equipment for the project is $23,000, and Garfield expects to sell the equipment for $9,000 at the end of the tenth year. The equipment will be depreciated on a straight-line basis over seven years for tax purposes. The project requires a working capital investment of $7,000 at its inception and another $5,000 at the end of year 5. The working capital is fully recoverable at the end of the life of the project. Assuming a 40% tax rate, expected net after-tax cash flow from the project for the tenth year is:
a.$32,000.
b.$24,000.
c.$20,000.
d.$11,000.
e.$12,000.
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