CathFoods will release a new range of candies which contain antioxidants. New eq

Question

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. If CathFood's marginal tax rate is 35%, what are the incremental free cash flows in the second year of this project? Question 8 options: A) $1.765 million B) $2.015 million C) $2.415 million D) $2.500 million

Explanation / Answer

depreciation = 2000000/5 =400,000 ncremental free cash flows in the second year of this project = (4,000,000-1500,000 -400,000)*(1-35%) + 400,000 =$1,765,000 A) $1.765 million

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