FAR Corporation FAR Corporation Is Considering a New Project to Manufacture Widgets

question 39

Multiple Choice

FAR Corporation
FAR Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $150,000. The cost of shipping and installation is an additional $15,000. The asset will fall into the 3-year MACRS class. The year 1-4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $300,000 per year. Cost of goods sold will be 80% of sales. The project will require an increase in net working capital of $15,000. At the end of three years, FAR plans on ending the project and selling the manufacturing equipment for $35,000. The marginal tax rate is 40% and FAR Corporation's appropriate discount rate is 12%.
-Refer to FAR Corporation.What is the depreciation expense in year 3?

• A) $49,995
• B) $22,215
• C) $11,115
• D) $66,675

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Definitions:

Population Pressure

The stress on resources and environment resulting from the density or increase of a population in a given area.

Exponential Growth

A population grows by a fixed percentage in successive time intervals; the size of each increase is determined by the current population size.

Limiting Factors

Environmental conditions that limit the growth, abundance, or distribution of an organism or a population within an ecosystem.

Life History Traits

Characteristic patterns and schedules of an organism’s growth, reproduction, and survival.