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.

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Definitions:

Schemas

Cognitive frameworks or concepts that help individuals organize and interpret information from the world around them.

Shape

The external form or appearance characteristic of someone or something; the outline of an area or figure.

Sensorimotor

Pertaining to the combined processes of sensory input and motor response; often related to the developmental stage in infants where they explore the world through their senses and actions.

Preoperational

Refers to the stage in Piaget's theory of cognitive development where children aged 2 to 7 years old use symbols and language but do not yet understand mental operations or logical thinking.