Question

1 . Dapper Company received $9,000 cash from the sale of a machine that had an $13,000 book value. If the company is subject to a 30% income tax rate, the net cash flow to use in a discounted-cash-flow analysis would be:

Multiple Choice

• $10,200.

• $2,700.

• $6,300.

• $9,000.

• $7,800

2 . Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow.

	Regular				Super				Total
Units		11,000				4,300				15,300
Sales revenue	$	297,000			$	946,000			$	1,243,000
Less: Cost of goods sold		220,000				559,000				779,000
Gross Margin	$	77,000			$	387,000			$	464,000
Less: Selling expenses		77,000				239,000				316,000
Operating income (loss)	$	0			$	148,000			$	148,000

Fixed manufacturing costs included in cost of goods sold amount to $2 per unit for Regular and $20 per unit for Super. Variable selling expenses are $3 per unit for Regular and $20 per unit for Super; remaining selling amounts are fixed.

Omar Industries wants to drop the Regular product line. If the line is dropped, company-wide fixed manufacturing costs would fall by 20% because there is no alternative use of the facilities. What would be the impact on operating income if Regular is discontinued?

Multiple Choice

• $0.

• $21,600 increase.

• $44,000 increase.

• $44,400 decrease.

• None of the answers is correct.

Answer 1

Answer to Question 1

Option 1 - 10,200

Answer to Question 2