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The Sisyphean Corporation is considering investing in a new cane manufacturing machine that has an estimated life of three years.The cost of the machine is $30,000 and the machine will be depreciated straight line over its three-year life to a residual value of $0.
The cane manufacturing machine will result in sales of 2000 canes in year 1.Sales are estimated to grow by 10% per year each year through year three.The price per cane that Sisyphean will charge its customers is $18 each and is to remain constant.The canes have a manufacturing cost of $9 each.
Installation of the machine and the resulting increase in manufacturing capacity will require an increase in various net working capital accounts.It is estimated that the Sisyphean Corporation needs to hold 2% of its annual sales in cash,4% of its annual sales in accounts receivable,9% of its annual sales in inventory,and 6% of its annual sales in accounts payable.The firm is in the 21% tax bracket,and has a cost of capital of 10%.
-The incremental EBIT in the first year for the Sisyphean Corporation's project is closest to:
Chili Peppers
Fruit of plants from the genus Capsicum, used worldwide as a spice or vegetable, known for their hot and spicy flavor.
Daily Aspirin
A regimen of taking aspirin every day, often recommended to reduce the risk of heart attack or stroke.
Heart Attack
A medical emergency that occurs when the flow of blood to the heart is blocked, causing heart muscle damage or death.
Normal Good
A type of good for which demand increases when consumer income rises, and decreases when consumer income decreases.
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