(Appendix 8C)Lanfranco Corporation Is Considering a Capital Budgeting Project That

question 22

Multiple Choice

(Appendix 8C) Lanfranco Corporation is considering a capital budgeting project that would require investing $160, 000 in equipment with an expected life of 4 years and zero salvage value.Annual incremental sales would be $480, 000 and annual incremental cash operating expenses would be $330, 000.The project would also require an immediate investment in working capital of $10, 000 which would be released for use elsewhere at the end of the project.The project would also require a one-time renovation cost of $100, 000 in year 3.The company's income tax rate is 35% and its after-tax discount rate is 6%.The company uses straight-line depreciation.Assume cash flows occur at the end of the year except for the initial investments.The company takes income taxes into account in its capital budgeting. The total cash flow net of income taxes in year 3 is:

• A)$46, 500
• B)$11, 500
• C)$111, 500
• D)$50, 000

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Definitions:

Tax Payment

The process of paying financial charges or levies imposed by a government on its citizens to fund public expenditures.

Personal Values

Core beliefs or standards that individuals hold, guiding their behavior and decision-making processes.

Scientific Observation

The act of noticing and recording phenomena or data in a systematic way as part of a scientific study.

Observations Interpretations

Observations interpretations involve analyzing and making sense of data or phenomena observed, forming conclusions or theories based on empirical evidence.