CathFoods Will Release a New Range of Candies Which Contain

question 89

Multiple Choice

CathFoods will release a new range of candies which contain antioxidants.New equipment to manufacture the candy will cost $2 million,which will be depreciated by straight-line depreciation over five years.In addition,there will be $5 million spent on promoting the new candy line.It is expected that the range of candies will bring in revenues of $4 million per year for five years with production and support costs of $1.5 million per year.If CathFood's marginal tax rate is 35%,what are the incremental free cash flows in the second year of this project?

• A)$1.765 million
• B)$2.015 million
• C)$2.415 million
• D)$2.500 million

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Definitions:

Tender Offer

An offer made directly to shareholders, proposing to purchase their shares at a specified price above market value.

Share Repurchase Program

A plan initiated by a company to buy back its own shares from the marketplace, often to reduce the supply of shares available and thus increase the value of remaining shares.

Open Market

An economic system in which prices for goods and services are determined by unrestricted competition between privately owned businesses.

Stockholders

Individuals or entities that own shares in a corporation, thereby having an ownership interest in the company.