Schroeder Electronics Is Considering a Project Which Will Require the Purchase

question 12

Multiple Choice

Schroeder Electronics is considering a project which will require the purchase of $5 million in new equipment. The equipment will be depreciated straight-line to a zero book value over the 5-year life of the project. Schroeder's expects to sell the equipment at the end of the project for 10% of its original cost. Annual sales from this project are estimated at $2.3 million. Net working capital equal to 10% of sales will be required to support the project. All of the net working capital will be recouped at the end of the project. Schroeder desires a 12% rate of return on this project. The tax rate is 40%. What is the value of the depreciation tax shield in year 2 of the project?

• A) $134,000
• B) $240,000
• C) $334,000
• D) $400,000
• E) $1,000,000

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Definitions:

Reversal Design

An experimental technique where a behavior is measured before and after a treatment is introduced, and then once again when the treatment is removed.

Intervention

Actions or strategies implemented to produce a change in a situation or in the behavior of individuals, often within educational or therapeutic contexts.

Changing Criterion Design

A method of graphing behavioral observations used to evaluate a slow and orderly increase or decrease in a student’s performance level by changing the criterion for the student to receive an intervention in a stepwise fashion.

Target Criterion

A specific goal or standard of performance that individuals aim to achieve in an intervention, training program, or behavioral experiment.