1. How is the opportunity cost concept used in the capital budgeting process?
2. The MacCauley Company has sales of $200 million and total expenses (excluding depreciation) of $130 million. Straight-line depreciation on the company's assets is $15 million, and the maximum accelerated depreciation allowed by law is $25 million. Assume that all taxable income is taxed at 40 percent. Assume also that net working capital remains constant.
a. Calculate the MacCauley Company's after-tax operating cash flow using both straight-line and accelerated depreciation.
b. Assuming that the company uses straight-line depreciation for book purposes and accelerated depreciation for tax purposes, show the income statement reported to the stockholders. What is the after-tax operating cash flow under these circumstances?