Use the Information for the Question(s)below

question 40

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 manufacturing cost 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 21% tax bracket,and has a cost of capital of 10%.
-The required net working capital in the first year for the Sisyphean Corporation's project is closest to:

• A)$3600.
• B)$3960.
• C)$2880.
• D)$5400.

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Definitions:

Probability

A measure of the likelihood that an event will occur, quantified as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.

Sample Mean

The average value computed from a sample of data, representing an estimate of the population mean.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, indicating how spread out the values of a data set are.

Population

In statistics, the entire pool from which a statistical sample is drawn.