A Project Will Reduce Costs by $34,000 but Increase Depreciation

question 50

Multiple Choice

A project will reduce costs by $34,000 but increase depreciation by $16,500.What is the operating cash flow of this project based on the tax shield approach if the tax rate is 40 percent?

• A)$5,775
• B)$9,275
• C)$15,625
• D)$20,400
• E)$27,000

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Definitions:

Entity Method

An accounting approach used in preparing consolidated financial statements where investments are recorded based on the parent company's percentage interest in the net assets of the subsidiary.

Consolidated Statement

A financial statement that presents the assets, liabilities, and operating results of a parent company and its subsidiaries as one entity.

Shareholders' Equity

The portion of a company's assets that belongs to the shareholders after debts and liabilities have been settled.

ASPE Reporting Requirements

Refers to the standards and guidelines for financial reporting under the Accounting Standards for Private Enterprises in Canada, which cover financial statement preparation and presentation for private companies.