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question 83

Multiple Choice

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 cost per unit to manufacture 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 35% tax bracket,and has a cost of capital of 10%.
-The amount of incremental income taxes that the Sisyphean Company will pay in the first year on this new project is closest to:

Recognize changes in productive capacity and the introduction of new products as factors affecting monopolistic competition.

Understand the characteristics and outcomes of monopolistic competition, including product differentiation and market behavior.

Differentiate between short-run and long-run equilibriums in monopolistically competitive markets.

Describe the concept of excess capacity and its implications for efficiency in monopolistically competitive markets.

Definitions:

Merchandise Inventory

Goods or products that a company holds for the purpose of selling them to customers, part of the current assets on a company's balance sheet.

Merchandise Inventory

Goods held by a company for the purpose of sale to customers in the ordinary course of business.

Accounts Payable

Money owed by a company to its suppliers or creditors for goods and services received.

Total Liabilities

The cumulative amount of all debts and financial obligations a company owes to outside parties.