Your Company Is Considering the Purchase of a New Machine

question 110

Multiple Choice

Your company is considering the purchase of a new machine. The original cost of the old machine was $100,000; it is now five years old, and it has a current market value of $40,000. The old machine is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $50,000 and an annual depreciation expense of $10,000. The old machine can be used for six more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new machine whose cost is $80,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new machine are $13,000 a year over its full MACRS depreciable life. Depreciation is computed using MACRS over a five-year life, and the cost of capital is 10 percent. Assume a 21 percent tax rate. What will the year 1 operating cash flow for this project be?

• A) $2,200
• B) $4,900
• C) $11,530
• D) $14,200

---

Definitions:

BRCA Mutation

A genetic alteration in the BRCA1 or BRCA2 genes, which significantly increases the risk of developing breast and ovarian cancers.

Magnetic Resonance Imaging

A medical imaging technique used to visualize detailed internal structures using powerful magnets and radio waves.

American Cancer Society

A nationwide voluntary health organization dedicated to eliminating cancer as a major health problem through research, education, and advocacy.

Fine Needle Aspiration

A medical procedure involving the extraction of cells or fluids from a tumor or mass using a thin, hollow needle for diagnostic purposes.