Use the Information Below to Answer the Following Question(s)

question 34

Multiple Choice

Use the information below to answer the following question(s) :
Aqua Life Jackets, Inc. has two product lines: adult jackets and children's jackets. Contribution margin income statement data for the most recent year follow:

-Assuming total fixed costs at Aqua Life Jackets, Inc. remain unchanged, how would dropping the children's jackets line affect operating income?

• A) Increase in total operating income of $8,000
• B) Increase in total operating income of $2,000
• C) Decrease in total operating income of $50,000
• D) Decrease in total operating income of $90,000

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Definitions:

Tax Shields

Financial techniques that reduce taxable income through deductions such as mortgage interest, depreciation, or charitable donations, effectively lowering tax liabilities.

Project Financing

A financial structure where project debt and equity used to finance the project are paid back from the cash flow generated by the project itself.

Stable Projects

Refers to projects or investments with predictable cash flows and lower levels of uncertainty or volatility.

Risky Projects

Projects that carry a higher degree of uncertainty and potential for loss, often requiring comprehensive risk assessment and management strategies.