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

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Definitions:

Sensory Memory

The shortest-term element of memory, it is the ability to retain impressions of sensory information after the original stimuli have ended.

Automatic Processing

The subconscious processing of information, allowing tasks to be performed without conscious effort or attention.

Ebbinghaus

A psychologist who pioneered the experimental study of memory and is best known for his discovery of the forgetting curve and the spacing effect.

Forgetting Curve

A graphical representation of the decline in memory retention over time, showing how information is lost when there is no attempt to retain it.