Moon Pie Company Is Considering Automated Baking Equipment That Costs

question 67

Multiple Choice

Moon Pie Company is considering automated baking equipment that costs $500,000 installed and would replace the present handmade production method. The present equipment has a zero book and salvage value. The new equipment will not increase revenues but will reduce operating costs from a current level of $600,000 to $300,000 per year. The depreciation of the new equipment will be $73,000 per year. What are the annual incremental net cash flows? Assume a marginal tax rate of 40 percent.

• A) $296,800
• B) $136,200
• C) $192,200
• D) $209,200

---

Definitions:

Purposeful Judgments

Decisions or opinions formed with deliberate intent, often based on evaluating evidence or criteria.

Use

The act of employing something for a particular purpose or function.

Skills

The ability to do something well, often as a result of knowledge, practice, and experience.

Sphere

A perfectly round geometrical object in three-dimensional space, like a globe or ball.