What is the worst-case scenario for the first year

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Question - Madison Manufacturing is considering a new product launch. The equipment will cost $720,000, have a four-year life, and have a salvage value of zero. The equipment falls into the 3-year MACRS tax life, with depreciation rates of 33.33%, 44.45%, 14.81%, and 7.41%. Sales are projected at 190 units per year, price per unit will be $21,000, and costs (excluding depreciation) are estimated as follows: variable costs per unit will be $15,000, and fixed costs will be $225,000. The firm's marginal tax rate is 25 percent and it uses a 15 percent risk-adjusted discount rate to evaluate projects of this type. Based on your experience you think that unit price and variable costs per unit are probably accurate to within ±10 percent. What is the worst-case scenario for the first year operating cash flow?

a. $216,369

b. $199,044

c. $233,244

d. $182,169

e. None of the provided answers is correct.

Reference no: EM132783302

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