**Project Analysis: CathFoods' New Candy Line**CathFoods plans to release a new line of candies featuring anti-oxidants. The development requires new equipment costing $4 million, which will be depreciated using straight-line depreciation over six years. Additionally, promotional expenses are estimated at $5 million.**Financial Expectations:**- **Revenue:** $6 million per year for five years.- **Production and Support Costs:** $1.5 million per year.- **Marginal Tax Rate:** 35%.**Objective:**Calculate the incremental earnings in the second year of the project.**Choices:**A) $2.492 million B) $2.100 million C) $3.833 million D) $1.342 million **Solution:**- **Depreciation:** $4 million / 6 years = $0.6667 million (approx.)- **Earnings Before Tax (EBT):** $6 million - $1.5 million - $0.6667 million ≈ $3.833 million- **Earnings After Tax:** $3.833 million * (1 - 0.35) = $2.492 million**Correct Answer:** A) $2.492 million**Competency Assessment:**- **Diff:** 1- **Var:** 12- **Skill:** Analytical- **AACSB Objective:** Analytic SkillsThis exercise evaluates the ability to apply depreciation and tax calculations in a business context, enhancing analytical and computational skills.

Incremental earnings are a critical concept in financial analysis and decision-making. They…

Answered: 8) CathFoods will release a new range…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Galvanized Products is considering the purchase of a new computer system for its enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow one-fourth of the purchase price from a bank at 15% compounded annually. The loan is to be repaid using equal annual payments over a 3-year period. The computer system is expected to last 5 years and has a salvage value of $5,000 at that time. Over the 5-year period, GalvanizedProducts expects to pay a technician $25,000 per year to maintain the system but will save $55,000 per year through increased efficiencies. Galvanized Products uses a MARR of 18%/yr to evaluate investments. Solve a. What is the external rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on external rate of return? c. Should the new computer system be purchased?
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TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture sport caps. The invoice price of the machine is $123,000. In addition, delivery and installation costs will total $5,500. The machine has the capacity to produce 12,000 dozen caps per year. Sales are forecast to increase gradually, and production volumes for each of the five years of the machine's life are expected to be as follows: Use Table 6-4. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.) 2019 3,600 dozen 2020 5,600 dozen 2021 8,500 dozen 2022 11,300 dozen 2023 12,000 dozen The caps have a contribution margin of $8.00 per dozen. Fixed costs associated with the additional production (other than depreciation expense) will be negligible. Salvage value and the investment in working capital should be ignored. TopCap Co.'s cost of capital for this capacity expansion has been set at 14%. Required: The caps have a…

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