Bi-Lo Traders is considering a project that will produce sales of $28,000 and increase cash expenses by $17,500

Bi-Lo Traders is considering a project that will produce sales of $28,000 and increase cash expenses by $17,500. If the project is implemented, taxes will increase by $3,000. The additional depreciation expense will be $1,600. An initial cash outlay of $1,400 is required for net working capital. What is the amount of the operating cash flow using the top-down approach?    A.  $4,500 B.  $5,900 C.  $6,100 D.  $7,500 E.  $8,900 OCF = $28,000 - $17,500 - $3,000 = $7,500

61.

A proposed expansion project is expected to increase sales of JL Ticker's Store by $41,000 and increase cash expenses by $21,000. The project will cost $28,000 and be depreciated using straight-line depreciation to a zero book value over the 4-year life of the project. The store has a marginal tax rate of 30 percent. What is the operating cash flow of the project using the tax shield approach?    A.  $5,600 B.  $7,800 C.  $16,100 D.  $13,300 E.  $14,600 OCF = ($41,000 - $21,000) (1 - 0.30) + ($28,000/4) (0.30) = $16,100

62.

The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $238,000 and cash expenses by $184,000. The initial investment will require $96,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 6-year life of the project. The company has a marginal tax rate of 32 percent. What is the annual value of the depreciation tax shield?    A.  $5,120 B.  $13,160 C.  $25,840 D.  $32,560 E.  $41,840 Depreciation tax shield = ($96,000/6) × 0.32 = $5,120