QUESTION 2

1. XYZ is evaluating the Reno project. The project would require an initial investment of $148,000 that would be depreciated to $16,200 over 6 years using straight-line depreciation. The project is expected to have operating cash flows of $51,200 per year forever. XYZ expects the project to have an after-tax terminal value of $335,000 in 3 years. The tax rate is 30%. What is (X+Y)/Z if X is the project's relevant expected cash flow in year 3, Y is the project's relevant expected cash flow in year 5, and Z is the project's relevant expected cash flow in year 2?

   A.)		A number equal to or greater than 14.27 but less than 16.30
   B.)		A number less than 7.04 or a rate greater than 16.30
   C.)		A number equal to or greater than 9.15 but less than 12.00
   D.)		A number equal to or greater than 7.04 but less than 9.15
   E.)		A number equal to or greater than 12.00 but less than 14.27