Question
1 . Dapper Company received $9,000 cash from the sale of a machine that had an $13,000 book value. If the company is subject to
1 . Dapper Company received $9,000 cash from the sale of a machine that had an $13,000 book value. If the company is subject to a 30% income tax rate, the net cash flow to use in a discounted-cash-flow analysis would be:
Multiple Choice
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$10,200.
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$2,700.
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$6,300.
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$9,000.
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$7,800
2 . Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow.
Regular | Super | Total | |||||||||
Units | 11,000 | 4,300 | 15,300 | ||||||||
Sales revenue | $ | 297,000 | $ | 946,000 | $ | 1,243,000 | |||||
Less: Cost of goods sold | 220,000 | 559,000 | 779,000 | ||||||||
Gross Margin | $ | 77,000 | $ | 387,000 | $ | 464,000 | |||||
Less: Selling expenses | 77,000 | 239,000 | 316,000 | ||||||||
Operating income (loss) | $ | 0 | $ | 148,000 | $ | 148,000 | |||||
Fixed manufacturing costs included in cost of goods sold amount to $2 per unit for Regular and $20 per unit for Super. Variable selling expenses are $3 per unit for Regular and $20 per unit for Super; remaining selling amounts are fixed. Omar Industries wants to drop the Regular product line. If the line is dropped, company-wide fixed manufacturing costs would fall by 20% because there is no alternative use of the facilities. What would be the impact on operating income if Regular is discontinued?
Multiple Choice
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$0.
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$21,600 increase.
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$44,000 increase.
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$44,400 decrease.
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None of the answers is correct.
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