Question
Bedrock Bottling is considering a project for a new beverage called Cactus Cola. The project would require new assets today costing $200,000 that would be
Bedrock Bottling is considering a project for a new beverage called Cactus Cola. The project would require new assets today costing $200,000 that would be depreciated using 3-year MACRS Depreciation (yr 1: 33%, yr 2: 45%, yr 3: 15%, yr 4: 7%). Additional net working capital of $9,000 would be needed at the beginning of the projects life. The project has a 4-year expected useful life with an expected salvage value of $50,000 at the end of the 4-year expected useful life. Bedrock expects Cactus Cola annual sales of $140,000 and annual operating costs of $60,000 during the 4-year life of the project. Bedrock Bottlings marginal tax rate is 25% and their WACC is 9%. What is the year 3 operating cash flow for Cactus Cola?
A. | $37,500 | |
B. | $50,000 | |
C. | $90,000 | |
D. | $67,500 |
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