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

question 28

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 order to receive $12,000 at the end of three years and $10,000 at the end of five years, how much must be invested now if you can earn 14% rate of return?

• A)$13,290.
• B)$32,054.
• C)$8,100.
• D)$12,978.

Recognize the importance of combining tangible and intangible assets in determining a business's price offer.

Understand the importance of transparent motivations in the sale and purchase of businesses.

Understand the concept and valuation of goodwill in business acquisitions.

Grasp the fundamentals and applications of discounted cash-flow analysis.

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Definitions:

Human Resource Managers

Professionals responsible for overseeing an organization's personnel management, including hiring, training, performance appraisal, and employee relations.

Internal And External Pressures

Forces originating within and outside an organization that influence its operations and decision-making processes.

Associational Unionism

A form of union organization based on collective activities and networks rather than formal membership, focusing on the common interests of workers.

Deregulation

The reduction or elimination of government power in a particular industry, usually to foster more competition and increase efficiency.