Question
7. Southern Corporation is examining an investment opportunity that will involve buying $200,000 worth of equipment. They will need $20,000 in net working capital up
7. Southern Corporation is examining an investment opportunity that will involve buying $200,000 worth of equipment. They will need $20,000 in net working capital up front. Shipping will cost $10,000 and installation will cost $15,000. The firm paid a management consultant $8,000 to analyze this project, which is supposed to increase sales by $40,000 per year. If the firm accepts the project, they will have to spend $7,000 to train the employees to use the new equipment. The corporate tax rate is 21%. What is the initial outlay for the project?
a) $245,000 b) $260,000 c) $300,000 d) $283,600 e) $252,000
8. Safeco Corporation is considering buying a $220,000 production machine. It would be depreciated (simplified straight line) for 10 years. This investment would allow the firm to increase sales by $180,000 per year. Operating expenses would increase by $70,000 per year also. The corporate tax rate is 21%. What is the annual cash flow for the project?
a) $69,520 b) $91,520 c) $88,000 d) $86,900 e) $202,120
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