Reference: 10-12
Hanley Company Purchased a Machine for $125,000 That

question 22

Multiple Choice

Reference: 10-12
Hanley Company purchased a machine for $125,000 that will be depreciated on the straight-line basis over a five-year period with no salvage value. The related cash flow from operations is expected to be $45,000 a year. These cash flows from operations occur uniformly throughout the year.
-The following data pertain to an investment: $$\begin{array} { | l | l | } \hline \text { Cost of the investment } & \$ 18,955 \\\hline \text { Life of the project } & 5 \text { years } \\\hline \text { Annual cost savings } & \$ 5,000 \\\hline \text { Estimated salvage value } & \$ 1,000 \\\hline \text { Discount rate } & 10 \% \\\hline\end{array}$$ The net present value of the proposed investment is:

• A)$3,355.
• B)$621.
• C)($3,430).
• D)$0.

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Definitions:

Marginal Benefit

The incremental advantage received by using one more unit of a good or service.

Monopolistic Competition

A market structure characterized by many firms offering differentiated products or services.

Long-Run Equilibrium

A state in which all firms in a market or industry are making normal profits, with no incentive for entry or exit, and all resources are optimally allocated.

Long-Run Equilibrium

A market condition where all inputs can be adjusted, firms are entering and exiting the market, and no economic profits are made, leading to a state of perfect competition.