Morage Corp

question 137

Multiple Choice

Morage Corp. is replacing an entire baking line that was purchased for $420,000 and currently has a book value of $60,000. The new, more efficient line, will cost $940,000 installed and can be depreciated as a 7-year MACRS asset. With the increased efficiency, Morage expects annual revenues to increase by $425,000, and operating expenses to increase by $170,000. The older machine, which was being depreciated at the straight-line rate of $20,000/year, will be sold for $30,000. What are the net cash flows for year 2? Assume the firm's marginal tax rate is 40% and that the year 2 depreciation rate is 24.49% under MACRS.

• A)$26,996
• B)$332,206
• C)$237,082
• D)$383,206

---

Definitions:

Decentralization

The distribution of decision-making powers from a central authority to local or individual levels within an organization or system.

Horizontal Specialization

An organizational structure approach that involves dividing work into specialized tasks or roles based on function or expertise at the same hierarchical level.

Organizational Design

Organizational design is the process of choosing and implementing a structural configuration for an organization.

Small-batch Production

A manufacturing process characterized by the production of small quantities of goods, allowing for flexibility and customization.