Ernie's Electrical Is Evaluating a Project Which Will Increase Sales

question 2

Multiple Choice

Ernie's Electrical is evaluating a project which will increase sales by $60,000 and costs by $20,000.The project will cost $125,000 and be depreciated straight-line to a zero book value over the 10 year life of the project.The applicable tax rate is 34%.What is the operating cash flow for this project?

• A)$3,300
• B)$5,000
• C)$9,350
• D)$30,650
• E)$38,300

---

Definitions:

Primarily Rental

Pertaining to the use of property mainly for rental purposes, which may affect the tax treatment of income and expenses related to the property.

Primarily Personal

This term typically pertains to expenses or activities that are mainly for personal benefit, and therefore, not deductible for tax purposes if related to business.

Net Loss

The result when a company's expenses exceed its revenues during a specific period, indicating negative profitability.

Schedule E

A form used by the IRS for reporting income and loss from rental property, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs.