Vernon-Nelson Chemicals Is Planning to Release a New Brand of Insecticide

question 11

Multiple Choice

Vernon-Nelson Chemicals is planning to release a new brand of insecticide, Bee-Safe, that will kill many insect pests but not harm useful pollinators. Buying new equipment to manufacture the product will cost and there will be an additional cost to reconfigure existing plant. The equipment is expected to have a lifetime of nine years and will be depreciated by the straight-line method over its lifetime. The firm expects that they should be able to sell 1,500,000 gallons per year at a price of $53 per gallon. It will take $36 per gallon to manufacture and support the product. If Vernon-Nelson's marginal tax rate is 40%, what are the incremental earnings after tax in year 3 of this project?

• A) $25.5 million
• B) $14.3 million
• C) $23.8 million
• D) $9.5 million

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Definitions:

General Adaptation Syndrome

A three-stage response (alarm, resistance, exhaustion) that the body goes through when under stress.

Alarm Phase

The initial stage of the stress response, also known as the "fight or flight" response, during which the body prepares to deal with an immediate threat or stressor.

Rites of Passage

Ceremonies or rituals marking important stages in an individual's life, such as birth, puberty, marriage, and death.

Arousal

A physiological and psychological state of being awake or reactive to stimuli, involving mechanisms that increase heart rate, blood pressure, and energy levels.