Your firm runs a factory that currently produces only jump ropes. You forecast that you will generate $200,000 in after-tax operating cash flows from jump ropes next year. You are considering expanding to produce pogo sticks as well. If you produce pogo sticks then your projected after-tax operating cash flows from jump ropes will be $160,000 and you will have $50,000 in after-tax operating cash flows from pogo sticks.

What are the incremental cash flows that you should consider for this project?

Question

Yahir Dennis

Business

23 December, 07:37

Your firm runs a factory that currently produces only jump ropes. You forecast that you will generate $200,000 in after-tax operating cash flows from jump ropes next year. You are considering expanding to produce pogo sticks as well. If you produce pogo sticks then your projected after-tax operating cash flows from jump ropes will be $160,000 and you will have $50,000 in after-tax operating cash flows from pogo sticks.

What are the incremental cash flows that you should consider for this project?

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Answers (1)

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Eliana Gibson · Answer 1

Incremental cash-flow $10,000

Explanation:

The incremental cash flow would be the difference between the cash flow before the expansion and after the expansion.

$

After tax cash flow from Jump before the decision 200,000

After tax cash flow from Jump after the decision 160,000

loss in cash flow (40,000)

add After tax cash flow from Pogo 50,000

Incremental cash-flow 10,000