A fiRm Is Considering a Project That Will Increase Sales

question 192

Multiple Choice

A firm is considering a project that will increase sales by $135,000 and cash expenses by $105,000. The project will cost $120,000 and be depreciated using the straight-line method to a zero book
Value over the 4-year life of the project. The company has a marginal tax rate of 34%. What is the
Value of the depreciation tax shield?

• A) $6,000
• B) $10,200
• C) $13,200
• D) $19,800
• E) $20,000

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Definitions:

Firm Charges

Fees or charges that a company puts in place for its services or products, often structured around cost-recovery or profit-making objectives.

Two-Part Tariffs

A pricing strategy where the cost to a customer consists of a fixed fee plus a variable charge based on usage or quantity purchased.

Volume Based

A pricing or discount strategy where the cost depends on the quantity of goods purchased or produced.

Quantity Discounts

A pricing strategy where the price per unit of an item decreases as the quantity purchased increases, used to encourage larger orders.