Your Firm Needs a Machine Which Costs $50,000, and Requires

question 17

Multiple Choice

Your firm needs a machine which costs $50,000, and requires $2,000 in maintenance for each year of its five-year life. After five years, this machine will be replaced. The machine falls into the MACRS five-year class life category. Assume a tax rate of 21 percent and a discount rate of 10 percent. If this machine can be sold for $3,000 at the end of year 5, what is the after-tax salvage value?

• A) $1,050.00
• B) $1,872.00
• C) $2,905.20
• D) $2,974.80

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Definitions:

Short Run

A time period in which at least one factor of production is fixed, limiting the ability of a firm to adjust its output.

Maximize Profits

The goal of increasing the difference between revenue and expenses to the highest possible level.

Minimize Losses

a strategy or approach aimed at reducing the amount of financial or production losses to the lowest possible level.

Losses

Negative financial outcomes resulting from the cost of operations exceeding revenue or from other financial transactions.