Stanton Inc

question 91

Multiple Choice

Stanton Inc.is considering the purchase of a new machine which will reduce manufacturing costs by $5,000 annually and increase earnings before depreciation and taxes by $6,000 annually.Stanton will use the MACRS method to depreciate the machine,and it expects to sell the machine at the end of its 5-year operating life for $10,000 before taxes.Stanton's marginal tax rate is 40 percent,and it uses a 9 percent required rate of return to evaluate projects of this type.If the machine's cost is $40,000,what is the project's NPV?

• A) $1,014
• B) $2,292
• C) $7,550
• D) $817
• E) $5,040

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Definitions:

Gills

The respiratory organ found in many aquatic organisms that extracts oxygen from water and expels carbon dioxide.

Chitin-Hardened Jaws

Structural feature referring to jaws strengthened by chitin, a fibrous substance forming the exoskeleton of arthropods and other organisms.

Marine Polychaetes

A diverse class of annelid worms, commonly known as bristle worms, that live in various marine environments.