Reference: 10-13
Jimbob Co Jimbob Co Uses a 10% Discount Rate and the Incremental Cost

question 30

Multiple Choice

Reference: 10-13
Jimbob Co. is considering two alternatives to replace some existing manufacturing equipment. The following data have been gathered concerning these two alternatives: $$\begin{array} { | l | l | l | } \hline & \text { Machine } A & \text { Machine } B \\\hline \text { Purchase cost new } & \$ 300,000 & \$ 300,000 \\\hline \text { Overhaul costs needed year } 4 & \$ 10,000 & 20,000 \\\hline \text { Annual cash operating costs } & \$ 130,000 & \$ 120,000 \\\hline \text { Salvage value at the end of 8 years } & \$ 20,000 & \$ 30,000 \\\hline\end{array}$$ Jimbob Co. uses a 10% discount rate and the incremental cost approach to capital budgeting analysis. Both alternatives are expected to have a useful life of eight years.
-In considering the impact of inflation in capital budgeting net present value calculations, which of the following should be adjusted for anticipated inflation?

• A)cash flows of future years.
• B)cost of capital.
• C)cash outflow at project start date.
• D)A & B.

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Definitions:

Compensation Insurance Scheme

An insurance plan designed to provide compensation to employees for injuries or disabilities sustained as a result of their employment.

Workers' Compensation Act

Legislation providing financial compensation and medical care for workers who are injured on the job or contract work-related illnesses.

Canadian Human Rights Act

A statute passed by the Parliament of Canada in 1977, designed to protect individuals from discrimination based on race, gender, disability, and other enumerated grounds.

Sexual Harassment

Unwanted or unwelcome behavior of a sexual nature that creates an intimidating, hostile, or offensive work environment.