1. A firm currently sells $2,500,000 annually of an expensive product line. That firm is considering a similar, less expensive, discount line, and projects sales of $500,000. The discount line is expected to reduce sales of the expensive product line to $2,200,000. What is the incremental revenue associated with the discount product line?

($300,000)

$200,000

$300,000

$500,000

$2,500,000

2. ABC, Inc. is considering a new project requiring a $150,000 initial investment in equipment having a useful life of 3 years with zero expected salvage value. The investment will produce $100,000 in annual revenues and $60,000 in annual costs. Assume a tax rate of 30% and straight-line depreciation. What is the operating cash flow per year?

$25,000

$33,000

$43,000

$55,000

$78,000