Use the Following Information to Answer the Question(s)below

question 3

Multiple Choice

Use the following information to answer the question(s) below.
Galt Motors currently produces 500,000 electric motors a year and expects output levels to remain steady in the future.It buys armatures from an outside supplier at a price of $2.50 each.The plant manager believes that it would be cheaper to make these armatures rather than buy them.Direct in-house production costs are estimated to be only $1.80 per armature.The necessary machinery would cost $700,000 and would be obsolete in 10 years.This investment would be depreciated to zero for tax purposes using a 10-year straight line depreciation.The plant manager estimates that the operation would require additional working capital of $40,000 but argues that this sum can be ignored since it is recoverable at the end of the ten years.The expected proceeds from scrapping the machinery after 10 years are estimated to be $10,000.Galt Motors pays tax at a rate of 21% and has an opportunity cost of capital of 14%.
-The incremental cash flow that Galt Motors will incur today (Year 0) if they elect to manufacture armatures in-house is closest to:

• A)-$740,000.
• B)-$700,000.
• C)-$660,000.
• D)$740,000.

---

Definitions:

Concrete Experience

A Kolb's Experiential Learning Theory component, involving learning through specific experiences and reflecting on those experiences.

Living Beings

Organisms that exhibit the characteristics of life, such as growth, reproduction, responsiveness, and metabolism.

Meaningful

Having significant, purposeful value or importance; capable of eliciting deep thought or emotion.

OTTFFSSENT

OTTFFSSENT is a mnemonic device used to remember the initial letters of the first ten numbers in sequence: One, Two, Three, Four, Five, Six, Seven, Eight, Nine, Ten.