1. The Terme Corporation is contemplating the purchase of new equipment, which may potentially increase revenues by 30%. Currently, sales are $720,000 per year and cost of sales are 60% of sales. The equipment is expected to last for 6 years with no residual value. The cash outflow expected at the beginning of the year is $427,200.

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

Multiple Choice

• $216,000

• $86,400

• $129,600

• $720,000

2. The Terme Corporation is contemplating the purchase of new equipment, which may potentially increase revenues by 30%. Currently, sales are $740,000 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 $285,600.

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

Multiple Choice

• $24,990

• $71,400

• $92,500

• $46,410

3. The Terme Corporation is contemplating the purchase of new equipment, which may potentially increase revenues by 25%. Currently, sales are $730,000 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 $356,500.

Ignoring income taxes, what is the estimated annual net operating income increase/decrease?

Multiple Choice

• $71,300 decrease

• $182,500 increase

• $82,125 decrease

• $10,825 increase