Ruth Company Has a Tax Rate of 40% and a Required

question 95

Multiple Choice

Ruth Company has a tax rate of 40% and a required rate of return of 12%.The company has new equipment that saves $200,000 per year in labor costs.What is the annual after-tax cash flow from the labor cost savings?

• A) $80,000 cash outflow
• B) $80,000 cash inflow
• C) $120,000 cash outflow
• D) $120,000 cash inflow

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Definitions:

Foreign Producers

Companies or individuals that produce goods or services in a country other than where the products are consumed.

Quota

A government-imposed trade restriction that limits the number or monetary value of goods that can be imported or exported during a specified time.

Tariff

A tax imposed on imported goods and services to raise their price, thereby protecting domestic industries from foreign competition.

Liberalize International Trade

The process of reducing tariffs, quotas, and other barriers to allow for the free flow of goods and services across national borders.