A Project Requires an Initial Investment in Equipment of $90,000

Multiple Choice

A project requires an initial investment in equipment of $90,000 and then requires an investment in working capital of $10,000 at the beginning (t = 0) . The project is expected to produce sales revenues of $120,000 for three years. Manufacturing costs are estimated to be
60% of the revenues. The assets are depreciated using straight-line depreciation. At the end of the project, the firm can sell the equipment for $10,000. The corporate tax rate is 30% and the cost of capital is 15%. Cash flows from the project are:

A) CF0: -90,000; CF1: 12,600; CF2: 12,600; CF3: 29,600
B) CF0: -100,000; CF1: 42,600; CF2: 42,600; CF3: 59,600
C) CF0: -100,000; CF1: 42,600; CF2: 42,600; CF3: 42,600
D) none of the above