1-

The Terme Corporation is contemplating the purchase of new equipment, which may potentially increase revenues by 30%. Currently, sales are $770,000 per year and cost of sales are 65% of sales. The equipment is expected to last for 4 years with no residual value. The cash outflow expected at the beginning of the year is $286,800.

By how much would Termes annual gross profit increase if the investment is undertaken?

2-

The Terme Corporation is contemplating the purchase of new equipment, which may potentially increase revenues by 25%. Currently, sales are $670,000 per year and cost of sales are 55% of sales. The equipment is expected to last for 5 years with no residual value. The cash outflow expected at the beginning of the year is $353,500.

What is the amount of depreciation deduction the company could expense annually assuming the straight-line depreciation method is used?