Com-Cat Is Considering Expanding Their Current Production Facility

question 40

Multiple Choice

Com-Cat is considering expanding their current production facility. This year Com-Cat had an operating income (EBIT) of $760,000, interest expenses of $120,000, depreciation expenses of $45,000, and capital expenditures of $160,000. Next year, after the expansion is completed, operating income is expected to be $880,000, interest expenses will remain at $120,000, but depreciation will increase to $61,000. To support the expansion, cash is to expected to increase by $5,000, accounts receivable by $12,000, inventories by $8,000, and accounts payable by $7,000. What is the change in Com-Cat's net operating cash flows attributable to this project, if the tax rate is 40%?

• A) $80,400
• B) $88,000
• C) $106,000
• D) $70,000

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Definitions:

True Cost

The comprehensive cost of a good or service, including all direct and indirect expenditures as well as environmental and social impacts.

Price Floors

Price Floors are legally established minimum prices for goods or services, below which they cannot be sold, usually set to protect producers.

Equilibrium

The state in a market where the quantity supplied equals the quantity demanded, and there is no incentive for price to change.

Tariff

A tax on imports.