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question 34

Multiple Choice

Use the information for the question(s) below.
The Sisyphean Corporation is considering investing in a new cane manufacturing machine that has an estimated life of three years.The cost of the machine is $30,000 and the machine will be depreciated straight line over its three-year life to a residual value of $0.
The cane manufacturing machine will result in sales of 2000 canes in year 1.Sales are estimated to grow by 10% per year each year through year three.The price per cane that Sisyphean will charge its customers is $18 each and is to remain constant.The canes have a manufacturing cost of $9 each.
Installation of the machine and the resulting increase in manufacturing capacity will require an increase in various net working capital accounts.It is estimated that the Sisyphean Corporation needs to hold 2% of its annual sales in cash,4% of its annual sales in accounts receivable,9% of its annual sales in inventory,and 6% of its annual sales in accounts payable.The firm is in the 21% tax bracket,and has a cost of capital of 10%.
-The amount of incremental income taxes that the Sisyphean Company will pay in the first year on this new project is closest to:

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Definitions:

Price Reduction

A decrease in the price of goods or services, often used as a strategy to increase sales or market share.

Maintenance, Repair

Activities and processes aimed at keeping equipment or facilities in working order and restoring them to operational condition after damage or wear.

Operating Supplies

Items that are consumed during the day-to-day operations of a business, including stationery, cleaning products, and small tools.

Competitive Price

The pricing of goods or services in a manner that is attractive to consumers while remaining sustainable for the business, often used to gain an advantage in the market.