Santo Automotive Is Considering Producing a New Automobile Product, No

question 21

Multiple Choice

Santo Automotive is considering producing a new automobile product, No Text, which disengages the ability to text while driving.Marketing data indicate that the company will be able to sell 40,000 units per year at $16 each.The product will be produced in a section of an existing factory that is currently not in use.To produce No Text, Santo must buy a machine that costs $820,000.The machine has an expected life of five years and will have an ending residual value of $50,000.Santo 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 annual manufacturing costs of $390,000.The income tax rate is 30% and the company's required rate of return is 10%.How much is net operating cash flow each year?

• A)$67,200
• B)$221,200
• C)$175,000
• D)$250,000

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Definitions:

Paraphrase

Expressing the meaning of something written or spoken using different words, especially to achieve greater clarity.

Active Listener

The practice of fully concentrating on what is being said rather than passively hearing the message of the speaker.

Source

The origin or point at which something comes from.

Message Content

The actual information or meaning conveyed in a communication process.