Use the Information for the Question(s)below

question 91

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 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 5% of its annual sales in accounts payable.The firm is in the 21% tax bracket,and has a cost of capital of 10%.
-The change in Net working capital from year one to year two is closest to:

• A)A decrease of $360.
• B)An increase of $360.
• C)An increase of $396.
• D)A decrease of $396.

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Definitions:

Encoding

The process of converting information into a form that allows it to be stored in our memory.

Attention

The cognitive process of selectively concentrating on one aspect of the environment while ignoring other things.

Early-Selection Model

A theory in cognitive psychology suggesting that information is filtered, or selected for further processing, early in the perceptual process.

Late-Selection Model

A theory in cognitive psychology suggesting that the selection of information for final processing occurs late in the processing sequence.