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Table 11.3 Cuda Marine Engines, Inc. Must Develop the Relevant Cash Flows

question 64

Multiple Choice

Table 11.3
Cuda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five-year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax net profits of $15,000 per year. The firm has a 40 percent tax rate.
-The annual incremental after-tax cash flow from operations for year 1 is ________. (See Table 11.3)

Calculate ending inventory and cost of goods sold (COGS) using different inventory costing methods.

Understand the effects of inventory costing choices on gross profit.

Distinguish between the perpetual and periodic inventory systems and their impact on inventory valuation.

Understand how specific identification method is used and in what contexts it is most applicable.

Definitions:

Long-Run Cost

Costs that a firm incurs when all factors of production and costs are variable, not fixed, in the long term.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing as scale increases.

Diseconomies of Scale

The phenomenon where production costs increase as a firm expands output, leading to reduced efficiency.

U-Shaped Long-Run Average Cost Curve

This describes the phenomenon where, over time, average costs first decrease with increased production, hit a minimum, and then increase with further production increase, forming a U-shape.