Question

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?

Answer 1

Incremental cash-flow $10,000

Step-by-step 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