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

question 65

Multiple Choice

(Appendix 13C) Hinger Corporation is considering a capital budgeting project that would require investing $120,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $350,000 and annual incremental cash operating expenses would be $250,000. The project would also require an immediate investment in working capital of $10,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 35% and its after-tax discount rate is 11%. 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:

Definitions:

Short-Run Equilibrium

A situation in which the quantity supplied and quantity demanded in a market are equal at a particular price level, but only for a temporary period.

Monopolistically Competitive

A market structure where many companies sell products that are similar but not identical, allowing for competition based on product differentiation.

Losses

Negative financial results that occur when a company's expenses exceed its revenues.

Monopolistically Competitive Industry

A market structure where many companies sell products that are similar but not identical, leading to competitive pricing and product differentiation.