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

question 113

Multiple Choice

(Appendix 8C) Kostka 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 $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 $0 in year 3.The company's income tax rate is 30% and its after-tax discount rate is 9%.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 2 is:

• A)$110, 000
• B)$117, 000
• C)$150, 000
• D)$33, 000

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Definitions:

Duel

A formalized combat between two individuals, traditionally conducted with weapons in the presence of witnesses, to settle a point of honor.

Personal Insults

Disparaging remarks or offenses directed at an individual, often intended to demean or belittle in a personal, rather than public or professional, context.

Haitian Revolution

A successful anti-slavery and anti-colonial insurrection by self-liberated slaves against French colonial rule in Saint-Domingue, now the sovereign nation of Haiti, from 1791 to 1804.

Former Slave

An individual who was previously subjected to slavery or involuntary servitude but has since obtained freedom.