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To fulfil the growing demand for its goods, a company is thinking about updating its machinery. Modifications to the equipment will cost $1.9 million in total, including$100,000 for installation. The company will use a 5-year recovery period to depreciate the equipment improvements in accordance with MACRS. (For the applicable depreciation percentages, see Table 4.2 on page 117.) The renewal should result in an increase in sales of $1.2 million per year, with additional operational expenditures and other costs (excluding depreciation and interest) accounting for 40% of the increased sales. The company must pay 40% in taxes. (Note: For each of the next six years, provide an answer.) What incremental operating cash inflows will result from the renewal?
Suppose a company offers you a sales position with your choice of two methods of determining your yearly salary. One method pays $50,000 plus a bonus of 2% of your yearly sales. The other method pays a straight 4% commission on your sales. For what yearly sales amount is it better to choose the second method?