Use the Information for the Question(s)below

question 81

Essay

Use the information for the question(s)below.
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%.
-Construct a simple income statement showing the incremental EBIT and the incremental unlevered net income for all three years of the Sisyphean Corporation's project.

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Definitions:

Agency

In legal terms, an agency refers to a relationship in which one party, known as the agent, is authorized to act on behalf of another party, known as the principal, in business transactions with third parties.

Privity Rule

A doctrine stating that only parties to a contract can sue or be sued on the contract's terms, restricting the rights of external parties.

Novation

A legal process by which an existing contract is replaced by a new contract, with the consent of all parties involved, often involving a change of parties or terms.

Statutory Assignment

The transfer of rights or interests in a particular matter as established by statute or legislative action.