Thaler & Co. anticipates an increase of $1,000,000 in Net Operating Income from first year sales of a new product. Taxes will be $350,000 and the company took $150,000 in depreciation expense. Operating cash flow equals
A) $1,000,000
B) $500,000
C) $800,000
D) $650,000
Schiller Construction Inc. has estimated the following revenues and expenses related to phase I of a proposed new housing development. Incremental sales= $5,000,000, total cash operating expenses $3,500,000, depreciation $500,000, taxes 35%, interest expense, $200,000. Operating cash flow equals
A) $650,000
B) $1,000,000
C) $1,150,000
D) $975,000
Incremental cash flows include all of the following EXCEPT
A) research and development costs.
B) increased labor costs from the project.
C) advertising costs.
D) both B and C.
Diamond Inc. has estimated that a new building will cost $2,500,000 to construct. Land was purchased a year ago for $500,000 and could be sold today for $550,000. An environmental impact study required by the state was performed at a cost of $48,000. For capital budgeting purposes, what is the relevant cost of the new building?
A) $2,500,000
B) $3,048,000
C) $3,050,000
D) $3,098,000
If SuperMart decides to offer a line of groceries at its discount retail outlet, inventories are expected to increase by $1,200,000, accounts receivable by $300,000 and accounts payable by $500,000. What is the cash outflow for working capital requirements?
A) $2,000,000
B) $1,700,000
C) $1,500,000
D) $1,000,000
If depreciation expense is taken over 5 years rather than 3 years, all things equal,
A) net present value will go down.
B) depreciation has no effect on net present value.
C) net present value will go up.
D) the answer depends on the company's marginal tax rate.
