%253Cp%253E%253Cspan%2520class%253D%2522c1%2522%253EFun%2520Land%2520is%2520cons
ID: 2622831 • Letter: #
Question
%253Cp%253E%253Cspan%2520class%253D%2522c1%2522%253EFun%2520Land%2520is%2520considering%2520adding%2520a%2520miniature%2520golf%250Acourse%2520to%2520its%2520facility.%2520The%2520course%2520would%2520cost%2520%252452%252C000%252C%2520would%2520be%250Adepreciated%2520on%2520a%2520straight%2520line%2520basis%2520over%2520its%25204-year%2520life%252C%2520and%250Awould%2520have%2520a%2520zero%2520salvage%2520value.%2520The%2520estimated%2520income%2520from%2520the%250Agolfing%2520fees%2520would%2520be%2520%252433%252C000%2520a%2520year%2520with%2520%25249%252C000%2520of%2520that%2520amount%250Abeing%2520variable%2520cost.%2520The%2520fixed%2520cost%2520would%2520be%2520%25247%252C200.%2520In%2520addition%252C%250Athe%2520firm%2520anticipates%2520an%2520additional%2520%252410%252C000%2520in%2520revenue%2520from%2520its%250Aexisting%2520facilities%2520if%2520the%2520course%2520is%2520added.%2520The%2520project%2520will%250Arequire%2520%25246%252C000%2520of%2520net%2520working%2520capital%252C%2520which%2520is%2520recoverable%2520at%2520the%250Aend%2520of%2520the%2520project.%2520What%2520is%2520the%2520after-tax%2520cash%2520flow%2520for%2520the%2520final%250Ayear%2520if%2520the%2520tax%2520rate%2520is%252029%2520percent%253F%253C%252Fspan%253E%253C%252Fp%253E%250A%253Cp%253E%253Cspan%2520lang%253D%2522EN-US%2522%2520class%253D%2522c2%2522%2520xml%253Alang%253D%250A%2522EN-US%2522%253Ea.%2520%252428%252C329%253Cbr%2520%252F%253E%250Ab.%2526nbsp%253B%252428%252C481%253Cbr%2520%252F%253E%250Ac.%2526nbsp%253B%252428%252C798%253Cbr%2520%252F%253E%250Ad.%2526nbsp%253B%252428%252C837%253Cbr%2520%252F%253E%250Ae.%2526nbsp%253B%252428%252C920%253C%252Fspan%253E%253C%252Fp%253E%250AExplanation / Answer
Hi,
Please find the answer as follows:
Annual Cash Inflows = (Golfing Fees + Additional Revenues - Variable Cost - Fixed Cost - Depreciation)*(1-Tax Rate) + Depreciation = (33000 +1000 - 9000 - 7200 - 52000/4)*(1-.29) + 52000/4 = 22798
Final Year Cash Flow = Annual Cash Inflows + Recovery of Working Capital = 22798 + 6000 = 28798
Option C (28798) is the correct answer.
Thanks.
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