The Miners' Deli Is Considering the Purchase of a New

question 52

Multiple Choice

The Miners' Deli is considering the purchase of a new computer system for inventory control purposes. It is thought that better inventory management will save the firm $20,000 a year in
Cash expenses although it is not expected to have any effect on revenues. It is also expected
That the deli will be able to reduce its investment in inventory by $5,000 a year. No other net
Working capital accounts are expected to be affected. The system will cost $80,000 and will be
Depreciated using straight-line depreciation over 5 years for tax purposes. The firm pays taxes
At a marginal rate of 25%. What are the annual incremental cash flows for this project?

• A)$14,000
• B)$24,000
• C)$19,000
• D)None of the above answers is correct.

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