Stack Corporation Is Considering a Capital Budgeting Project That Would

question 120

Multiple Choice

Stack Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $200,000 and annual incremental cash operating expenses would be $150,000. The project would also require a one-time renovation cost of $10,000 in year 3. The company's income tax rate is 35% and its after-tax discount rate is 7%. 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)$50,000
• B)$33,000
• C)$30,000
• D)$39,500

---

Definitions:

Quality Management

The act of overseeing all activities and tasks needed to maintain a desired level of excellence.

Statistical Interpretation

The process of analyzing and making sense of data collected through statistical methods to draw conclusions or make inferences.

Product Measurements

The quantifiable attributes or characteristics of a product, used to determine its quality, size, or performance.

Walter Shewhart

A pioneering American physicist known for his work in statistical process control and creating the control chart method.