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The Sisyphean Corporation Is Considering Investing in a New Cane

question 47

Multiple Choice

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% each year through year 3. The price per cane that Sisyphean will charge its customers is $17 each and is to remain constant. The canes have a cost per unit to manufacture of $8 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, 5% of its annual sales in accounts receivable, 10% of its annual sales in inventory, and 6% of its annual sales in accounts payable. The firm is in the 35% tax bracket and has a cost of capital of 9%.
The required net working capital in the second year for the Sisyphean Corporation's project is closest to ________.

Definitions:

CSR Efforts

Initiatives taken by a company to assess and take responsibility for its effects on environmental and social well-being, often going beyond compliance and engaging in actions that further social good.

Corporate Headquarters

The main office or central administration point of a company where key managerial decisions are made.

Biofuel-Powered Vehicles

Vehicles that operate using fuel produced from organic matter or waste, instead of traditional petroleum fuels.

Eco-Efficiency Measures

A form of CSR information that helps managers evaluate the savings generated by using fewer natural resources in a company’s operations.