Webster Corporation Is Considering Producing a New Automobile Product, Glisten

question 91

Multiple Choice

Webster Corporation is considering producing a new automobile product, Glisten. Research has determined that the company will be able to sell 50,000 units per year at $13. The product will be produced in a section of an existing factory that is currently not in use. To produce Glisten, Webster must buy a machine that costs $380,000. The machine has an expected life of five years and will have an ending residual value of $40,000. Webster will depreciate the machine over five years using the straight-line method. In addition to the cost of the machine, the company will incur incremental manufacturing costs of $535,000. Webster has an income tax rate of 30 percent, and the company's required rate of return is 7 percent. Calculate the payback period.

• A) 3.8 years
• B) 3.3 years
• C) 4.7 years
• D) None of these answer choices are correct.

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Definitions:

Business Model

A strategic plan outlining how a company creates, delivers, and captures value, essentially explaining how it operates and makes money.

Business Model Canvas

A strategic management template for developing new or documenting existing business models, outlining nine key components of a business.

Multisided Market

A platform or market that facilitates interactions between two or more distinct but interdependent groups of customers.

Shopping Center

A complex or area that houses multiple retail stores, services, and often includes food establishments, designed for consumers to shop at multiple locations in one vicinity.