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

question 94

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 NPV of manufacturing the armatures in-house is closest to:

• A)1,095,000.
• B)1,215,000.
• C)1,173,000.
• D)1,250,000.

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Definitions:

Preeminence

The quality of being superior or outstanding in a particular field or context.

Acceptance Is Timely

implies that an offer has been accepted within the timeframe specified, or in a reasonable period, making a contract binding.

Accepted by Offeree

The act of an offeree agreeing to the terms of an offer, thereby creating a binding contract.

Extend an Offer

This refers to the act of presenting a proposal to enter into a contract, which may include terms of employment, purchase offers, or other agreements.