CFA Practice Question

There are 151 practice questions for this study session.

CFA Practice Question

The WACC for a capital project is 10%. The after-tax operating cash flows are $50,000 each year for the next 3 years. The project is expected to have a 3-year-life and 0 salvage value. The economic income of the project during year 1 is:

A. 50,000.
B. 45,454.
C. 12,434.
Correct Answer: C

Economic income (year 1) = Cash flow - Economic depreciation = CF1 - (V0 - V1).
CF1 = 50,000;
V0 = 50,000/1.101 + 50,000/1.102 + 50,000/1.103= 124,343
V1= 50,000/1.101 + 50,000/1.102= 86777.
Economic income (year 1) = 50,000 - (124,343 - 86,777) = 12,434.

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rana1970 Good one
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