Question
Your company is planning to purchase a bulldozer at a capital cost of $390,000 after which it will hire an experienced operator and undertake short
Your company is planning to purchase a bulldozer at a capital cost of $390,000 after which it will hire an experienced operator and undertake short term contracts for cash compensation. Aside from having to pay the operator, operating costs include mainly fuel and repairs which are paid for in cash when incurred. The bulldozer has a three-year useful life and will have no salvage value at the end of its useful life, so it needs to be fully depreciated over this period. Although the addition of the bulldozer will not affect head office costs, it is the company's policy to allocate head office costs to all revenue generating pieces of equipment. The projected income statement for this project is presented below. (Assume all cash flows occur at the end of the year) What is the cash flow amount you would use for year 1 of a net present value analysis of this project? Years 0 1 2 3 Capital cost 390,000 Cash sales 340,000 350,000 400,000 Cash cost of sales 75,000 80,000 90.000 Gross profit 265,000 270,000 310,000 Operator's salary 110,000 115,000 120,000 Depreciation 130,000 130,000 130,000 Head office overhead 10.000 12,000 1,000 250,000 257,000 251,000 15,000 13,000 59,000 Select one: a. $145,000 b. $15,000 c. $265,000 d. $155,000 e. None of the above Your company is planning to purchase a bulldozer at a capital cost of $390,000 after which it will hire an experienced operator and undertake short term contracts for cash compensation. Aside from having to pay the operator, operating costs include mainly fuel and repairs which are paid for in cash when incurred. The bulldozer has a three-year useful life and will have no salvage value at the end of its useful life, so it needs to be fully depreciated over this period. Although the addition of the bulldozer will not affect head office costs, it is the company's policy to allocate head office costs to all revenue generating pieces of equipment. The projected income statement for this project is presented below. (Assume all cash flows occur at the end of the year) What is the cash flow amount you would use for year 1 of a net present value analysis of this project? Select one: a. $145,000 b. $15,000 c. $265,000 d. $155,000 e. None of the above
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