Snow Fun Corporation Is Considering a New Product Line

question 101

Multiple Choice

Snow Fun Corporation is considering a new product line.The company currently manufactures several lines of snow skiing apparel.The new products,insulated ski bikinis,are expected to generate sales of $1.2 million per year for the next five years.They expect that during this five-year period,they will lose about $150,000 each year in sales on their existing lines of longer ski pants.The new line will require no additional equipment or space in the plant and can be produced in the same manner as the apparel products.The new project will,however,require that the company spend an additional $50,000 per year on insurance in case customers sue for frostbite.Also,a new marketing director would be hired to oversee the line at $75,000 per year in salary and benefits.Because of the different construction of the bikinis,an increase in inventory of $9,000 would be required initially.If the marginal tax rate is 35%,compute the incremental after tax cash flows for years 1-5.

• A) $634,500 per year
• B) $625,000 per year
• C) $601,250 per year
• D) $537,500 per year

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Definitions:

Living Things

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Natural Selection

The process by which biological traits become either more or less common in a population as a function of the effect of inherited traits on the survival and reproduction of individuals.

Advantageous Genes

Genetic traits that provide a benefit to the individual, increasing the likelihood of survival and reproduction.

Subsequent Generations

Subsequent generations refer to the offspring or descendants that follow the current generation, highlighting the lineage or succession in families or species.