John Kay Inc A)$2,220,000
B)$2,200,000
C)$0
D)-$2,200,000
E)-$2,220,000

question 77

Multiple Choice

John Kay Inc. is considering the installation of a new production line to make automated flying shuttles for weaving machines. The capital cost of the equipment is $2.2 million. The machines on the new line are classified as 15-year property. Kay plans to operate the line for two years, at which time the project will end and the assets will be disposed of for $1,000,000. The new line requires an increase in net working capital of $20,000, which would be liquidated at the end of the project. The investment outlays would occur immediately. Sales are expected to be constant at $2,000,000, and operating expenses at $800,000. Assume that all revenues and operating expenses are received (paid) at the end of each of the two years of operations. Kay's marginal tax rate is 35 percent. Kay's cost of capital is 11%. What is initial cash flow for the flying shuttle project?
MACRS Depreciation Rates
$$\begin{array} { | c | c | c | } \hline \text { Year } & \mathbf { 1 0 - Y e a r } & \mathbf { 1 5 } - \text { Year } \\\hline 1 & 10.00 \% & 5.00 \% \\\hline 2 & 18.00 \% & 9.50 \% \\\hline 3 & 14.40 \% & 8.55 \% \\\hline\end{array}$$

• A)$2,220,000
• B)$2,200,000
• C)$0
• D)-$2,200,000
• E)-$2,220,000

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Definitions:

Stimulus Discrimination

The ability to distinguish between different stimuli, responding only to specific stimuli while ignoring others.

Higher-Order Conditioning

A conditioning process in which a stimulus that previously was neutral is paired with a conditioned stimulus to produce the same conditioned response, even in the absence of the original unconditioned stimulus.

Spontaneous Recovery

The return of a conditioned response that had previously been eliminated, following a period where the conditioned stimulus was not presented.

Extinction

In psychology, the gradual weakening and eventual disappearance of a learned response, often occurring when the reinforcement previously associated with the behavior is removed.