Tech Engineering Company Is Considering the Purchase of a New

question 149

Multiple Choice

Tech Engineering Company is considering the purchase of a new machine to replace an existing one.The old machine was purchased 5 years ago at a cost of $20,000,and it is being depreciated on a straight line basis to a zero salvage value over a 10-year life.The current market value of the old machine is $14,000.The new machine,which falls into the MACRS 5-year class,has an estimated life of 5 years,it costs $30,000,and Tech plans to sell the machine at the end of the 5th year for $1,000.The new machine is expected to generate before-tax cash savings of $3,000 per year.The company's tax rate is 40 percent.What is the IRR of the proposed project?

• A) 4.1%
• B) 2.2%
• C) 0.0%
• D) −1.5%
• E) −3.3%

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Definitions:

Demand for Pounds

Refers to the desire or requirement for British pounds in the foreign exchange market, usually driven by trade, investment, or speculation needs.

Fixed Exchange Rates

A currency system where the value of a currency is pegged to another currency, a basket of currencies, or a valuable commodity like gold.

World Liquidity

The availability of global financial assets that can be easily exchanged or used for transactions.

Central Banks

National banks that provide financial and banking services for a country's government and commercial banking system, mainly responsible for monetary policy.