Use the Following Information for Questions

question 6

Multiple Choice

Use the following information for questions
A company projects an increase in net income of $40,000 each year for the next five years if it invests $500,000 in new equipment.The equipment has a five-year life and an estimated salvage value of $50,000.The company uses the straight-line method of depreciation.
-What is the net annual cash flow?

• A)$40,000
• B)$90,000
• C)$130,000
• D)$140,000

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Definitions:

Treasury Stock

Shares of a company's own stock that it has reacquired from shareholders and holds, reducing the amount of outstanding stock on the market.

Cash Dividend

Cash payments made by corporations to their owners from profits earned.

Authorized Shares

The highest quantity of shares that a company can legally distribute, as stated in its charter.

Noncumulative

Pertaining to preferred stock dividends, where dividends not paid in one period do not accumulate and are not required to be paid in future periods.