(Appendix 13C) Bedolla Corporation Is Considering a Capital Budgeting Project

question 104

Multiple Choice

(Appendix 13C) Bedolla Corporation is considering a capital budgeting project that would require investing $160,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $430,000 and annual incremental cash operating expenses would be $310,000. The company's income tax rate is 30% and its after-tax discount rate is 8%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
-The total cash flow net of income taxes in year 2 is:

• A) $80,000
• B) $96,000
• C) $24,000
• D) $120,000

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Definitions:

Brandeis

Refers to Louis Brandeis, an American lawyer and Associate Justice on the Supreme Court of the United States from 1916 to 1939, known for his advocacy of privacy and his role in developing the modern concept of free speech.

Fundamentalism

A strict adherence to specific theological doctrines typically in a reaction against modernist theories, often characterized by a literal interpretation of religious texts.

Pluralism

A political philosophy or system that recognizes and affirms diversity within a political body, allowing for the peaceful coexistence of different interests, convictions, and lifestyles.

Calvin Coolidge

The 30th President of the United States, serving from 1923 to 1929, known for his conservative policies and small government philosophy.