LISP Inc Is Planning to Purchase a New Mixer for $50,000

question 26

Multiple Choice

LISP Inc. is planning to purchase a new mixer for $50,000 that will qualify as MACRS 3-year property (first-year depreciation rate = 33.33%) . The new mixer should increase revenues by $20,000 per year, with no increase in operating cost. If LISP's marginal tax rate is 40 percent, what is the net cash flow in the first year?

• A) $22,665
• B) $19,000
• C) $18,666
• D) $21,500

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Definitions:

LIFO

Last In, First Out, an inventory valuation method where the last items placed in inventory are the first ones sold.

Link-Chain Method

A statistical method used for adjusting economic or financial time series data for the effects of inflation or other external factors to show real changes over time.

Dollar-Value LIFO

Dollar-value LIFO (Last In, First Out) is an accounting method used for inventory that measures the cost of inventory in dollar terms, adjusting for inflation.