Real Time Inc. the President of Real Time Inc. Has Asked You to Asked

question 165

Multiple Choice

Real Time Inc.
The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net working capital of $2,000. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's required rate of return is 14 percent.
-Refer to Real Time Inc.What is the supplemental operating cash flow in Year 2?

• A) $9,000
• B) $10,240
• C) $11,687
• D) $13,453
• E) $16,200

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Definitions:

Laspeyres Price Index

A measure of the change in the aggregate price level of a basket of goods and services over time, using the quantities purchased in the base year.

Paasche Price Index

The Paasche Price Index measures the change in the price level of a basket of goods and services between two periods, using the quantities of the current period.

Strong Axiom

A principle or rule with robust implications or requirements, though more context is needed for a specific field application.

Revealed Preference

An economic concept referring to the idea that consumers' choices, reflected in their purchasing decisions, reveal their preferences for certain goods or services over others.