Moon Pie Company Is Considering Automated Baking Equipment That Costs

question 67

Multiple Choice

Moon Pie Company is considering automated baking equipment that costs $500,000 installed and would replace the present handmade production method. The present equipment has a zero book and salvage value. The new equipment will not increase revenues but will reduce operating costs from a current level of $600,000 to $300,000 per year. The depreciation of the new equipment will be $73,000 per year. What are the annual incremental net cash flows? Assume a marginal tax rate of 40 percent.

• A) $296,800
• B) $136,200
• C) $192,200
• D) $209,200

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