Niwot IncIs Considering an Investment That Will Generate $600,000 in Revenues

question 40

Multiple Choice

Niwot Inc.is considering an investment that will generate $600,000 in revenues per year for 7 years and has $360,000 of cash expenses for the same period (before income taxes) .The cost of the asset is $420,000 and it will be depreciated using straight-line depreciation over the 7 year life.The asset has no salvage value.Niwot's tax rate is 30%.The cost of capital is 9%.
What is the annual after-tax cash flow associated with this investment?

• A)$240,000
• B)$186,000
• C)$126,000
• D)$150,000
• E)None of the answer choices is correct.

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Definitions:

Overhead Cost

Expenses related to the operation of a business that cannot be directly linked to a specific product or service.

Customer Margin

The profit generated from a particular customer, calculated by subtracting the costs directly associated with serving them from the revenue they generate.

Activity-based Costing

A costing method that assigns costs to products or services based on the activities and resources that contribute to their creation and delivery.

Activity Cost Pools

Groupings of individual costs based on the activities that drive them, used in activity-based costing to allocate costs more accurately.