Cameron Industries Is Purchasing a New Chemical Vapor Depositor in Order

question 68

Multiple Choice

Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $7,000,000 to buy the machine and $20,000 to have it delivered and installed. Building a clean room in the plant for the machine will cost an additional $3 million. The machine is expected to raise gross profits by $4,500,000 per year, starting at the end of the first year, with associated costs of $1 million for each of those years. The machine is expected to have a working life of seven years and will be depreciated over those seven years. The marginal tax rate is 40%. What are the incremental free cash flows associated with the new machine in year 0?

• A) -$10,020,000
• B) -$7,000,000
• C) -$9,018,000
• D) $1,002,857

Analyze the impact of income sources and allowances on budget constraints and choices.

Apply the concept of opportunity cost to resource allocation in various scenarios.

Construct and interpret budget constraints involving different goods and their prices.

Analyze the effect of promotions and refunds on consumer budgeting and choices.

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Definitions:

Gross Method

An accounting approach for recording purchases at the invoice price without deduction of any cash discounts offered.

Perpetual Inventory System

A strategy for managing inventory accounting that utilizes computerized point-of-sale systems and enterprise asset management software to immediately document sales or purchases.

Accounts Payable

Obligations a business has to its creditors, arising from the purchase of goods and services on credit.

Perpetual Inventory System

A system for accounting inventory that instantly captures the transactions of buying or selling via computerized point-of-sale systems and software for enterprise asset management.