Luis is the sole shareholder of a corporation, and Eduardo owns a sole proprietorship. Both businesses were started in year 2015, and both make a profit of $80,000 in year 2015. Each owner withdraws $50,000 from his business during the year to pay personal expenses. Which one of the following statements is incorrect?a. Eduardo must report net profit from his business of $80,000 for 2015.b. Luis must report dividend income of $80,000 for 2015.c. Eduardo’s proprietorship (as opposed to Eduardo) is not required to pay tax on the $80,000 profit for 2015.d. Luis’s corporation must pay tax on $80,000 for 2015. e. None of the above.

Shrieves casting company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by sidney johnson, a recently graduated mba. the production line would be set up in unused space in the main plant. the machinery’s invoice price would be approximately $200,000, another $10,000 in shipping charges would be required, and it would cost an additional $30,000 to install the equipment. the machinery has an economic life of 4 years, and shrieves has obtained a special tax ruling that places the equipment in the macrs 3-year class. the machinery is expected to have a salvage value of $25,000 after 4 years of use. the new line would generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $100 per unit in the first year, excluding depreciation. each unit can be sold for $200 in the first year. the sales price and cost are both expected to increase by 3% per year due to inflation. further, to handle the new line, the firm’s net working capital would have to increase by an amount equal to 12% of sales revenues. the firm’s tax rate is 40%, and its overall weighted average cost of capital, which is the risk-adjusted cost of capital for an average project (r), is 10%. define “incremental cash flow.” (1) should you subtract interest expense or dividends when calculating project cash flow?