Question
Suppose we are evaluating Project Z that costs $160,000, has a life of 5 years, and has no salvage value. Assume that depreciation is straight-line
Suppose we are evaluating Project Z that costs $160,000, has a life of 5 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 4,000 units per year. Price per unit is $15, variable cost per unit is $8, and fixed costs are $45,000 per year. The tax rate is 34 percent and we require a return of 7 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within 5 percent. What is the best case OCF in Year 1?
-$5,623
$3,039
$5,257
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