The Sisyphean Corporation Is Considering Investing in a New Cane

question 80

Multiple Choice

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 3. 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 5% of its annual sales in accounts payable. The firm is in the 35% tax bracket and has a cost of capital of 10%.
The depreciation tax shield for the Sisyphean Corporation's project in the first year is closest to ________.

• A)$10,500
• B)$3500
• C)$3150
• D)$2800

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Definitions:

Phallic

Relating to or resembling a phallus or penis, often used to describe certain aspects of Freudian psychosexual development during the phallic stage.

Psychosexual Development

Freud's theory that childhood development occurs in a series of fixed psychosexual stages, each characterized by different demands for sexual gratification.

Puberty

The developmental period in which an individual becomes capable of reproduction, marked by physical growth and hormonal changes.

Genital

Pertaining to the external and internal organs of reproduction in both males and females.