A Company Is Considering the Purchase of Some Equipment That

question 104

Multiple Choice

A company is considering the purchase of some equipment that in the second year of operation should cause an increase in sales of $200,000, an increase in cash expenses of $120,000, and a depreciation deduction of $60,000. If the appropriate tax rate is 40 percent, what will be the after-tax effect of this equipment on cash flows in year two?

• A) No effect
• B) Net after-tax cash inflows will be $72,000.
• C) Net after-tax cash inflows will be $12,000.
• D) Net after-tax cash inflows will be $20,000.

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Definitions:

SNCC

Abbreviation for the Student Nonviolent Coordinating Committee, a key organization in the American civil rights movement of the 1960s.

Nonviolent Resistance

A method of protest and political activism that rejects the use of physical violence to achieve social or political change.

African-American Freedom

The state or condition of being free from slavery, oppression, or discrimination for people of African descent in America.

International Communism

A political and economic ideology advocating for a classless society, with common ownership of the means of production, and with international scope or application.