Shepard Industries Is Evaluating a Proposal to Expand Its Current

question 100

Multiple Choice

Shepard Industries is evaluating a proposal to expand its current distribution facilities. Management has projected that the project will produce the following cash flows for the first two years (in millions of dollars) .

The depreciation tax shield for Shepard Industries project in year 2 is closest to ________.

• A) $90 million
• B) $69 million
• C) $135 million
• D) $108 million

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Definitions:

Total Fixed Costs

The sum of all costs that remain constant regardless of the level of production or sales.

Mixed Cost

Mixed Cost refers to expenses that have both fixed and variable components, changing in total with activity level but also containing a static portion that remains constant.

Variable Cost

Costs that change in proportion to the level of goods or services a company produces.

Fixed Cost

Costs that do not vary with the level of production or sales, remaining constant even when the volume of output changes.