Problemcathfoods will release a new range of candies which, Ask an Expert

Accounting

Problem:

CathFoods will release a new range of candies which contain antioxidants. New equipment to manufacture the candy will cost $2 million, which will be depreciated by straight-line depreciation over five years. In addition, there will be $5 million spent on promoting the new candy line. It is expected that the range of candies will bring in revenues of $4 million per year for five years with production and support costs of $1.5 million per year.

Required:

Question: If CathFood's marginal tax rate is 35%, what are the incremental free cash flows in the second year of this project?

Note: Provide support for rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91169399

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