ABC already spent $85,000 on a feasibility study for a machine that will produce a new product.

ABC already spent $85,000 on a feasibility study for a machine that will produce a new product. The machine will cost $2,575,000. Required modifications will cost $375,000. ABC will need to invest $75,000 for additional inventory. The machine has an IRS approved useful life of 7 years; it is presumed to have no salvage value. It will only be operated for 3 years, after which it will be sold for $600,000. What is the depreciable cost basis of the machine?

A) $3,025,000

B) $2,950,000

C) $2,575,000

D) $2,350,000

ABC already spent $85,000 on a feasibility study for a machine that will produce a new product. The machine will cost $2,575,000. Required modifications will cost $375,000. ABC will need to invest $75,000 for additional inventory. The machine has an IRS approved useful life of 7 years; it is presumed to have no salvage value. It will only be operated for 3 years, after which it will be sold for $600,000. What is the total investment amount required for the project?

A) $3,025,000

B) $2,950,000

C) $2,575,000

D) $2,350,000

ABC will purchase a machine that will cost $2,575,000. Required modifications will cost $375,000. ABC will need to invest $75,000 for additional inventory. The machine has an IRS approved useful life of 7 years; it is presumed to have no salvage value. ABC plans to depreciate the machine by using the straight-line method. The machine is expected to increase ABC's sales revenues by $1,890,000 per year; operating costs excluding depreciation are estimated at $454,600 per year. Assume that the firm's tax rate is 40%. What is the annual operating cash flow?

A) $922,464

B) $1,126,287

C) $813,563

D) $1,029,811

ABC purchased a machine for $2,575,000. Required modifications will cost $375,000. ABC will need to invest $75,000 for additional inventory. The machine has an IRS approved useful life of 7 years; it is presumed to have no salvage value. It will only be operated for 3 years, after-which it will be sold for $600,000. ABC plans to depreciate the machine by using the straight-line method. Assume that the firm's tax rate is 40%. What is the termination (non-operating) cash flow from the machine in year three?

A) $900,623

B) $1,109,286

C) $1,298,114

D) $879,247

Use the following information to answer the following question(s).Key Ratios for ABC, Inc. and Its Industry

 Use the following information to answer the following question(s).

                                                              Key Ratios for ABC, Inc. and Its Industry

                                                ABC, Inc. 2013 Ratios        Industry Average Ratios in 2013

Current ratio                                          1.2                                              1.4

Acid test ratio                                     0.89                                            0.94

Average collection period        30 days                                     25 days

Inventory turnover                            18.1                                            20.3

Fixed assets turnover                          4.1                                              4.8

Total asset turnover                          2.78                                              2.8

Debt ratio                                             50%                                           60%

Times-interest-earned                     5.5%                                          4.5%

Net profit margin                           1.15%                                          1.5%

Return on equity                            5.21%                                        7.32%

                  ABC, Inc. Income Statement (in thousands)

                                        December 31, 2014

Sales (all credit)                                                                $200,000

Cost of goods sold                                                             140,000

Gross profit on sales                                                            60,000

Operating expenses                                                             56,000

Operating income                                                                   4,000

Interest expense                                                                       1,000

Earnings before tax                                                                 3,000

Income tax                                                                                 1,050

Net income available to common stockholders          $1,950

                     ABC, Inc. Balance Sheet (in thousands)

                                        December 31, 2014

Assets

Cash                                                                                         $2,000

Accounts receivable                                                             17,800

Inventories                                                                                8,700

Total current assets                                                              28,500

Gross fixed assets                                                                 70,000

Accumulated depreciation                                                26,500

Net fixed assets                                                                     43,500

Total assets                                                                          $72,000

Liabilities and Equity

Accounts payable                                                              $18,000

Accruals                                                                                  13,350

Total current liabilities                                                       31,350

Long-term debt                                                                        8,250

Total liabilities                                                                      39,600

Common stock (par value and paid in capital)            2,000

Retained earnings                                                                30,400

Total stockholders' equity                                                  32,400

Total liabilities and equity                                              $72,000

In 1995, ABC's average collection period is

A) 30 days.

B) 32.5 days.

C) 25 days.

D) 35 days.

In 2014, ABC's inventory turnover is

A) 23.9.

B) 20.3.

C) 15.5.

D) 16.1.

In 2014, ABC's fixed asset turnover is

A) 2.78.

B) 5.0.

C) 4.6.

D) 4.8.

Since 2013, ABC's efficiency at using its assets has

A) improved.

B) deteriorated.

C) remained the same.

D) been variable across components of the efficiency measures.

In 2014, the improvement in ABC's return on equity occurred because

A) ABC used more debt than in 1994.

B) ABC lowered its expenses in 1995 and was, therefore, more profitable.

C) ABC utilized its total assets more efficiently in 1995.

D) None of the above explain the improvement in ABC's return on equity.

Since 2013, ABC's liquidity has

A) improved.

B) deteriorated.

C) remained the same.

D) been variable across components of the liquidity measures.

Since 2013, ABC's inventory management has

A) improved.

B) deteriorated.

C) remained the same.

D) changed but in an indeterminate manner.