Consider a $12,000 Machine That Will Reduce After-Tax Operating Costs

question 24

Multiple Choice

Consider a $12,000 machine that will reduce after-tax operating costs by $2,500 per year over a five-year period. Assume no changes in net working capital and a salvage value of zero. Further assume that the machine belongs in a 20% CCA class, a marginal tax rate of 34%, and a required return of 10%. The project NPV is:

• A) $73
• B) $449
• C) $689
• D) $827
• E) $1,235

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Definitions:

Balance Sheet

A report that outlines a firm's assets, liabilities, and shareholders' equity at a particular moment.

Foreign Currency

Currency used in a country other than the home country of the business entity, often involved in international transactions.

Foreign Exchange Gain

A profit resulting from changes in exchange rates when foreign currency holdings are valued at the current exchange rate.

Exchange Rates

The rate at which one currency can be exchanged for another, defining the relative value between two currencies.