Question
A 3-year project is expected to generate annual revenues of $125,000, variable costs of $50,000, and fixed costs of $55,000. Assume that variable costs and
A 3-year project is expected to generate annual revenues of $125,000, variable costs of $50,000, and fixed costs of $55,000. Assume that variable costs and fixed costs are both cash costs. The required capital expenditure at the start of the project is $60,000. The annual depreciation for the project's capital expenditure is $20,000 and the tax rate is 30 per cent. Suppose that there is no change in the net working capital from accepting this project and that the salvage value of the capital expenditure at the end of project is zero. What is the project's operating cash flow at the end of year 2?
A. | -$5,000 | |
B. | $0 | |
C. | $10,000 | |
D. | $20,000 | |
E. | All of the answers above are incorrect. |
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