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

question 20

Multiple Choice

(Appendix 8C) Mitton 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 $440, 000 and annual incremental cash operating expenses would be $320, 000.The project would also require a one-time renovation cost of $0 in year 3.The company's income tax rate is 35% and its after-tax discount rate is 12%.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 income tax expense in year 2 is:

• A)$14, 000
• B)$112, 000
• C)$28, 000
• D)$154, 000

Learn how to calculate the accounts receivable period.

Understand how inventory management and turnover rates impact the operating cycle.

Determine the impact of changes in inventory, receivables, and payables periods on the operating and cash cycles.

Compute the accounts payable period and its significance in liquidity management.

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A government program that provides pensions, disability insurance, and benefits to retirees, their dependents, and disabled workers.

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