Your Firm Needs a Computerized Line-Boring Machine Which Costs $80,000

question 225

Multiple Choice

Your firm needs a computerized line-boring machine which costs $80,000, and requires $20,000 in maintenance for each year of its three year life. After three years, the salvage value will be zero. The machine falls into the Class 10 equipment category (CCA rate 30%) . Assume a tax rate of 34% and a discount rate of 10%.

What is the project's EAC?

• A) -$2,374
• B) -$32,905
• C) -$37,539
• D) -$53,667
• E) -$61,964

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Definitions:

Cost of Debt

The effective rate that a company pays on its current debt, inclusive of all fees and interest.

Total Assets

The sum of all assets owned by a company, including cash, investments, equipment, and real estate.

EBIT

Earnings Before Interest and Taxes, a financial metric that calculates a company's profitability based on operations, excluding interest and taxes.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity, which is considered when financing its overall operations and growth.