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

question 104

Multiple Choice

(Appendix 8C) Skolfield Corporation is considering a capital budgeting project that would require investing $280, 000 in equipment with an expected life of 4 years and zero salvage value.Annual incremental sales would be $590, 000 and annual incremental cash operating expenses would be $470, 000.The project would also require an immediate investment in working capital of $20, 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 $30, 000 in year 3.The company's income tax rate is 30% and its after-tax discount rate is 15%.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 net present value of the entire project is closest to:

• A)($2, 498)
• B)$34, 420
• C)($13, 938)
• D)$119, 000

Comprehend the adjustments needed to convert net income to net cash provided by operating activities using the indirect method.

Identify and adjust the effects of changes in working capital accounts on cash flows using the direct method.

Assess how changes in balance sheet accounts impact the cash flow statement.

Recognize and calculate the impact of cash and non-cash investing and financing transactions.

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Definitions:

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