Table 11.4 Computer Disk Duplicators, Inc. Has Been Considering Several Capital Investment

question 190

Multiple Choice

Table 11.4
Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2004. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent.
*Not applicable
-For Proposal 3, the annual incremental after-tax cash flow from operations for year 3 is ________. (See Table 11.4)

• A) $45,000
• B) $75,150
• C) $90,150
• D) $109,140

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Definitions:

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product and are a significant part of its composition.

Actual Cost

The actual amount spent on goods, services, and labor to produce an item or to run a company.

Data Collected

The process of gathering and measuring information on targeted variables to answer relevant questions and evaluate outcomes.

Direct Materials Price Variance

The difference between the actual cost of direct materials used in production and the standard cost, multiplied by the actual quantity of materials used.