Mars IncIs Considering the Purchase of a New Machine Which Will

question 150

Multiple Choice

Mars Inc.is considering the purchase of a new machine which will reduce manufacturing costs by $5,000 annually.Mars will use the MACRS accelerated method to depreciate the machine,and it expects to sell the machine at the end of its 5-year operating life for $10,000.The firm expects to be able to reduce net working capital by $15,000 when the machine is installed,but required working capital will return to the original level when the machine is sold after 5 years.Mars' marginal tax rate is 40 percent,and it uses a 12 percent required rate of return to evaluate projects of this nature.If the machine costs $60,000,what is the NPV of the project?

• A) −$15,394
• B) −$14,093
• C) −$58,512
• D) −$21,493
• E) −$46,901

---

Definitions:

Control Variable

A variable that is kept constant or unaltered in an experiment to ensure that the effects observed are due to the independent variable.

Questionnaire

A research instrument composed of a series of questions and other prompts for the purpose of gathering information from respondents.

Psychological Test

An objective and standardized measure of a sample of behavior used to assess psychological constructs such as cognitive abilities and emotional functioning.

Experimental Approach

A method of research in which variables are manipulated to observe effects on other variables, often used to determine cause-and-effect relationships.