Titanic Tools Uses Tool and Die Machines to Produce Machinery

question 109

Multiple Choice

Titanic Tools uses tool and die machines to produce machinery for other firms. The initial cost of one customized tool and die machine is $1.8 million. This machine costs $16,000 a year to operate. Each machine has a life of 3 years before it is replaced. What is the equivalent annual cost of this machine if the required return is 14%? Ignore taxes.

• A) $680,416.08
• B) $692,113.27
• C) $703,897.29
• D) $762,408.16
• E) $791,316.67

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Definitions:

Return On Investment

A financial metric employed for assessing the profitability of an investment, calculated by dividing the investment's net profit by its initial cost.

Direct Operating Expenses

Costs that are directly associated with the operation of a business, such as wages and raw materials.

Revenues

The total income received by a company from its business activities, typically from the sale of goods and services before any expenses are deducted.

Income From Operations

The earnings generated from a company's primary business activities, excluding non-operating income and expenses.