Use the Information for the Question(s)below

question 19

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 depreciation tax shield for the Sisyphean Corporation's project in the first year is closest to:

• A)$8000
• B)$3500
• C)$2800
• D)$5200

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Definitions:

Radioisotopes

Isotopes of elements that are radioactive, undergoing decay and emitting radiation in the process.

Fossil

Any past evidence of an organism that has been preserved in the Earth’s crust.

Billion Years

A period of time equal to one thousand million (1,000,000,000) years, often used to express the age of the Earth or the universe.