John Kay Inc

question 18

Multiple Choice

John Kay Inc.is considering the installation of a new production line to make automated flying shuttles for weaving machines.The capital cost of the equipment is $2.2 million.The machines on the new line are classified as 15-year property.Kay plans to operate the line for 2 years,at which time the project will end and the assets will be disposed of for $1,000,000.The new line requires an increase in net working capital of $20,000,which would be liquidated at the end of the project.The investment outlays would occur immediately.
Sales are expected to be constant at $2,000,000,and operating expenses at $800,000.Assume that all revenues and operating expenses are received (paid) at the end of each of the two years of operations.Kay's marginal tax rate is 35 percent.Kay's cost of capital is 11%.What are the operating cash flows at the end of Year 1?
MACRS Depreciation Rates

• A) $708,500
• B) $764,000
• C) $793,000
• D) $818,500
• E) $818,850

---

Definitions:

Migration

The movement of people or animals from one region or habitat to another, often seasonally or periodically.

Hierarchical System

A hierarchical system is an organized structure in which elements are ranked or classified based on levels of importance or authority, often depicted in a pyramid shape where each layer controls the one below.

Chain of Command

The chain of command is a hierarchical structure within an organization that outlines the authority and responsibility relationships amongst its members, ensuring clear lines of communication and decision-making.

Distributed System

A system in which computer processing is done across multiple separate machines, connected by a network, allowing for more efficient processing and data handling.