Question
Santo Automotive is considering producing a new automobile product, No Text, which disengages the ability to text while driving. Marketing data indicate that the company
Santo Automotive is considering producing a new automobile product, No Text, which disengages the ability to text while driving. Marketing data indicate that the company will be able to sell 40,000 units per year at $16 each. The product will be produced in a section of an existing factory that is currently not in use. To produce No Text, Santo must buy a machine that costs $820,000. The machine has an expected life of five years and will have an ending residual value of $50,000. Santo will depreciate the machine over five years using the straight-line method. In addition to the cost of the machine, the company will incur incremental annual manufacturing costs of $390,000. The income tax rate is 30% and the companys required rate of return is 10%. How much is net operating cash flow each year?
$67,200 | ||
$221,200 | ||
$175,000 | ||
$250,000 |
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