Hinger Corporation Is Considering a Capital Budgeting Project That Would

question 213

Multiple Choice

Hinger Corporation is considering a capital budgeting project that would require investing $120,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $350,000 and annual incremental cash operating expenses would be $250,000. The project would also require an immediate investment in working capital of $10,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 11%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.The total cash flow net of income taxes in year 3 is:

• A) $79,000
• B) $42,000
• C) $51,000
• D) $30,000

---

Definitions:

Corn-Based Resins

Bioplastic materials derived from corn starch, used as an environmentally friendly alternative to petroleum-based plastics for various applications.

Green Marketing

Marketing efforts designed to communicate and promote the environmental benefits of a product or service.

Oil-Based Resins

Synthetic or natural resins that are soluble in oil and used in the production of varnishes, paints, and plastics.

Happy Meals

A children's meal sold by a prominent fast-food company that typically includes a main item, a side, a drink, and a toy.