Macadamia Company Is Considering an Investment in Equipment for $55,000

question 74

Multiple Choice

Macadamia Company is considering an investment in equipment for $55,000. Chocolate uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 40 percent, and the life of the equipment is five years with no salvage value. The expected income before depreciation and taxes is projected to be $30,000 per year. What is the annual cash flow for Year 1?

• A)$33,000
• B)$18,000
• C)$22,000
• D)$22,400

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Definitions:

Marked Up

Refers to the percentage increase in the price of a good or service over its original cost to achieve a profit.

Marked Down

Refers to a reduction in the selling price of goods or services, typically to clear inventory or to boost sales.

Sale Price

The final amount at which an item is sold after any discounts or promotions.

Operating Expense

Costs associated with the day-to-day functioning of a business, excluding production costs but including items like rent, utilities, and salaries.