Bruno Is Acquiring a New Machine with a Life of 5

question 65

Multiple Choice

Bruno is acquiring a new machine with a life of 5 years for use on its production line. The following data relate to this purchase: $\begin{array}{lr}\text { Cost of new machine } & \$ 100000 \\\text { Annual cost savings in cash expenses } & 45000 \\\text { Terminal value } & 8000 \\\text { Maintenance required in the 4th year } & 5000 \\\text { Book value of the old machine } & 20000\end{array}$ The new machine would replace an old fully-depreciated machine. The old machine can be sold for $15,000 at the time the new equipment is acquired. The income tax rate is 30%, and the discount rate is 12%. Arnold uses the straight-line method for depreciation on all machines (ignore the half-year convention) .
The present value of the total savings (excluding the maintenance in year 4) in annual cash operating costs is:

• A) $50,167.50
• B) $48,667.50
• C) $162,225.00
• D) $113,557.50

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Definitions:

Independence

The state or condition of being free from dependence, control, or support from others, often associated with self-reliance and autonomy.

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A form of love fueled by passion and feelings of intimacy.

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A very strong feeling of enthusiasm or excitement for something or about doing something, often driven by strong emotions or deep interests.

Connectedness

The emotional bond and sense of unity felt towards individuals or communities, contributing to one's sense of belonging and social identity.