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Question 3

The present value of future cash flows minus initial cost is called: the initial investment risk equivalent value. the equivalent sum of the investment. the future value of the project. the net present value of the project. Sacred Heart Hospital is evaluating a new potential project. From the beginning the project will need $250,000 for new fixed assets, $90,000 for additional inventory and $20,000 for additional accounts receivable. Accounts payable is expected to increase by $150,000 and long-term debt is expected to increase by $275,000. The project has a 7-year life. The fixed assets will be depreciated straight-line to a zero-book value over the life of the project. At the end of the project, the fixed assets can be sold for 25% of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of $625,000 and costs of $385,000. The tax rate is 35% and the required rate of return is 9%. EBIT What is the amount of the earnings before interest and taxes for the first year of this project? O $210,200 O $150,000 O $204,285 O $175,185 Sacred Heart Hospital is evaluating a new potential project. From the beginning the project will need $250,000 for new fixed assets, $90,000 for additional inventory and $20,000 for additional accounts receivable. Accounts payable is expected to increase by $150,000 and long-term debt is expected to increase by $275,000. The project has a 7-year life. The fixed assets will be depreciated straight-line to a zero-book value over the life of the project. At the end of the project, the fixed assets can be sold for 25% of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of $625,000 and costs of $385,000. The tax rate is 35% and the required rate of return is 9%. AFTER-TAX SALVAGE VALUE At the end of the project, what is the after-tax cash flow? (Round your answer to whole dollars.) $33,630 0 $40.625 $62,460 O $27,840