Answered: Next year, you are forecasting sales…

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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Next year, you are forecasting sales for your company of $12 million. There is only one category of current asset on your company's balance
sheet, inventory. The balance at the beginning of the year was $1.4 million, at the end of the year, $1.8 million. The only current liabilities on the
company's balance sheet was accounts payable. At the beginning of the year, the balance was $500,000, at the end of the year, $600,000. What is
the change in net working capital for the year?
O A. A reduction in free cash flow of $400,000.
B. A reduction in free cash flow of $500,000.
C. An increase in free cash flow of $500,000.
O D. An increase in free cash flow of $400,000.
O E. A reduction in free cash flow of $300,000.

Transcribed Image Text:QUESTION 41 As part of your internship, you have been asked to estimate cash flows for project evaluation purposes of your division for next year. There is a specialized piece of equipment that is needed in your division. A brand-new version of this equipment would cost $50,000 or more today. Fortunately, your company has a used piece of equipment that will work just as well. This piece of equipment was originally bought for $45,000 but has by now been depreciated down to a zero-book value. If not used in your division, the equipment can be sold for an after-tax cash flow of $25,000. Át what value should the second-hand piece of equipment be included in your cash-flow estimate (round to $'00)? O A. The value of $45,000 is correct as this will recoup the money originally spent. O B. The NPV of "next-best use" is a cash outflow of $25,000. OC.If used, the equipment must be replaced, thus, $50,000 is appropriate. D. None of the above. O E. As its book value is zero, it should be included at zero value.

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