(Appendix 8C)Freiman Corporation Is Considering Investing in a Project That

question 3

Multiple Choice

(Appendix 8C) Freiman Corporation is considering investing in a project that would have a 4 year expected useful life.The company would need to invest $160, 000 in equipment that will have zero salvage value at the end of the project.Annual incremental sales would be $390, 000 and annual cash operating expenses would be $270, 000.In year 3 the company would have to incur one-time renovation expenses of $70, 000.Working capital in the amount of $10, 000 would be required.The working capital would be released for use elsewhere at the end of the project.The company uses straight-line depreciation on all equipment. The income tax expense in year 2 is:

• A)$24, 000
• B)$21, 000
• C)$36, 000
• D)$3, 000

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Definitions:

Accounting Equation

The fundamental equation stating that Assets = Liabilities + Equity, which is the basis of the double-entry bookkeeping system.

Accounts Payable

Liabilities of a business that are owed to creditors for goods and services purchased on credit but not yet paid.

Rent Expense

An expense incurred by a company for the use of a property or equipment.

Repair and Maintenance

Expenses incurred to keep an asset in working condition or to restore it to its desired condition, which do not extend the asset's useful life significantly.