CathFoods Will Release a New Range of Candies Which Contain

question 79

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 four 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 four years with production and support costs of $1.5 million per year. If CathFoods' marginal tax rate is 35%, what are the incremental free cash flows in the second year of this project?

• A) $1.800 million
• B) $1.400 million
• C) $2.000 million
• D) $0.700 million

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