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

question 72

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.
- $$\begin{array} { | l | l | l | } \hline & \text { Depreciation expense } & \text { Salvage value } \\\hline \text { A) } & \text { Include } & \text { Include } \\\hline \text { B) } & \text { Include } & \text { Exclude } \\\hline \text { C) } & \text { Exclude } & \text { Include } \\\hline \text { D) } & \text { Exclude } & \text { Exclude } \\\hline\end{array}$$

• A)Choice A.
• B)Choice B.
• C)Choice C.
• D)Choice D.

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Definitions:

Cerebrum

The cerebrum is the largest part of the brain, responsible for higher brain functions such as thought, action, reasoning, emotion, and memory.

Inferior Colliculi

Pair of structures located in the midbrain, involved in auditory processing and acting as a major relay center for sound information.

Pyramids

Ancient massive structures with a square base and four triangular sides, mainly found in Egypt as tombs for pharaohs.

Sensory Tracts

Nerve pathways in the central nervous system that transmit sensory information from the body to the brain.