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Use the Following Information to Answer the Question(s)below

question 3

Multiple Choice

Use the following information to answer the question(s) below.
Galt Motors currently produces 500,000 electric motors a year and expects output levels to remain steady in the future.It buys armatures from an outside supplier at a price of $2.50 each.The plant manager believes that it would be cheaper to make these armatures rather than buy them.Direct in-house production costs are estimated to be only $1.80 per armature.The necessary machinery would cost $700,000 and would be obsolete in 10 years.This investment would be depreciated to zero for tax purposes using a 10-year straight line depreciation.The plant manager estimates that the operation would require additional working capital of $40,000 but argues that this sum can be ignored since it is recoverable at the end of the ten years.The expected proceeds from scrapping the machinery after 10 years are estimated to be $10,000.Galt Motors pays tax at a rate of 21% and has an opportunity cost of capital of 14%.
-The incremental cash flow that Galt Motors will incur today (Year 0) if they elect to manufacture armatures in-house is closest to:

Understand the legal implications and liabilities of accountants in their professional roles.

Identify the different tests and standards assessing accountant liability to third parties.

Comprehend the contractual obligations and engagement process between accountants and clients.

Grasp the significance and enforcement of Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAAS).

Definitions:

GDP Changes

The alterations in the Gross Domestic Product of a country, indicating the rate of growth or decline in the economy over a period.

Risk Premium

The extra return above the risk-free rate that investors require as compensation for the risk of an investment.

Simple CAPM

A model that describes the relationship between the risk of a security and its expected return, based on the premise that markets are efficient.

Risk-free Rate

The theoretical return on an investment with zero risk, typically represented by the yield on government bonds.