John Kay Inc is considering the installation of a new production line to make automated flying shuttles for weaving machines. The capital cost of the equipment is $2.2 million. The machines on the new line are classified as 15-year property
Kay plans to operate the line for 2 years, at which time the project will end and the assets will be disposed of for $1,000,000. The new line requires an increase in net working capital of $20,000, which would be liquidated at the end of the project. The investment outlays would occur immediately.
Sales are expected to be constant at $2,000,000, and operating expenses at $800,000. Assume that all revenues and operating expenses are received (paid) at the end of each of the two years of operations. Kay's marginal tax rate is 35 percent. Kay's cost of capital is 11%. What are the operating cash flows at the end of Year 1?
MACRS Depreciation Rates
Year 10-Year 15-Year
1 10.00% 5.00%
2 18.00% 9.50%
3 14.40% 8.55%
A) $708,500
B) $764,000
C) $793,000
D) $818,500
E) $818,850
D
You might also like to view...
Which of the following refers to marketing strategies that support environmental stewardship by establishing an environmentally founded differential benefit in the minds of consumers?
A) greenwashing B) green marketing C) triple bottom line orientation D) social marketing E) social networking
Alan tells Sherry that he will pay her $5,000 if she runs the Boston Marathon. Once Sherry starts running the marathon, Alan ________.
A. can revoke the contract, as an informal verbal agreement is not legally binding B. can revoke the contract, provided he does so before she completes the marathon C. can reduce the amount of money he offered her, provided he does so before she completes the marathon D. cannot revoke the contract
What is a virtual workplace?
A. The viewing of the physical world with computer-generated layers of information added to it. B. Technology that allows humans to interact with a computer through bodily sensations and movements. C. A work environment that is not located in any one physical space. D. A wearable computer with an optical head-mounted display (OHMD).
A virtual private network (VPN) is a private data network that uses a common carrier's public telecommunications infrastructure, at a cost, for private organizational purposes
Indicate whether the statement is true or false