Question: Temporary Housing Services (THS) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a cyclone. THS
Temporary Housing Services (THS) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a cyclone. THS will lease space in this facility to various agencies and groups providing relief services to the area. THS estimates that this project will initially cost $6 million to set up and will generate $22 million in revenues during its first and only year of operation (paid in one year). Operating expenses are expected to total $13 million during this year and depreciation expense will be another $4 million. THS will require no working capital for this investment. THS's marginal tax rate is 30%. Ignoring the original investment of $6 million, what is THS's free cash flow for the first and only year of operation? A) $6.0 million B) $6.75 million C) $7.5 million D) $8.0 million
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