A Company Is Considering Buying a Machine That Costs $500,000

question 97

Multiple Choice

A company is considering buying a machine that costs $500,000, has a useful life of ten years, and is depreciated over its useful life by the straight-line method. The salvage value of the machine at the end of ten years will be $40,000. This machine will replace an old machine that is fully depreciated; the old machine has a salvage value of $75,000 now. If the simple rate of return of this investment is 12.7%, then the anticipated annual incremental net operating income from this machine for each of the next ten years is (Ignore income taxes.) :

• A) $100,000
• B) $63,825
• C) $53,975
• D) $46,380

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Definitions:

Price Ceiling

A legally established maximum price that can be charged for a good or service, usually set below the equilibrium price to make goods more affordable.

Excess Demand

A situation where the quantity demanded of a good exceeds the quantity supplied at a given price, often leading to upward pressure on prices.

Equilibrium Quantity

The quantity of goods or services at which demand equals supply, leading to a stable market condition.

Minimum Wage

The lowest legal wage that can be paid to most workers.