Question

Jojo Inc. is a profitable tax paying firm (pays taxes close to 10 million per year from other unrelated projects). Jojo is evaluating a new project where it expects project sales of 1.5 million this year, 2.2 million next year and zero sales after that. Sale price is a $14.50 and the cost to produce is $5.80 per unit. In order to have these profits, machinery must be purchased that costs 12 million dollars up front and which will be depreciated equally over the equipment’s useful life span of 3 years and an upfront RD expense must be made of 4 million dollars. Administration expenses are 3 million per year for the two project years. The firm pays a 40% tax rate. Solve for net income for time 0-3. 1) Net income happens to be the same for time 0 and time 3 what is this dollar amount?

A) -2.4 B) -3.6 C) -4 D) -1.6 E) -4.4

Answer 1

Thus net income for Year 0 and Year 3 is -2,400,000 or -2.4 Million

So the answer is A) -2.4

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