Use the Information for the Question(s)below

question 66

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 by the straight-line method over its three-year life to a residual value of $0.
The cane manufacturing machine will result in sales of 2 000 canes in year 1. Sales are estimated to grow by 10% per year for each of the three years. 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 30% tax bracket and has a cost of capital of 10%.
-Which of the following would you NOT consider when making a capital budgeting decision?

• A)the change in direct labour expense due to the purchase of a new machine
• B)the additional taxes a firm would have to pay in the next year
• C)the opportunity to lease out a warehouse instead of using it to house a new production line
• D)the cost of a marketing study completed last year

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Reaction Range

The concept in genetics that individual genotype sets limits on the range of possible phenotypes in response to different environments.

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Characteristics or attributes that are passed from parents to their offspring through genes.

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Specific settings or conditions that are distinct in characteristics and can influence individuals in diverse ways.