Clemens Company Is Considering the Purchase of a New Machine

question 12

Multiple Choice

Clemens Company is considering the purchase of a new machine for £160,000. The machine would generate an annual cash flow before depreciation and taxes of £62,588 for four years. At the end of four years, the machine would have no salvage value. The company's cost of capital is 12 per cent. The company claims capital allowances using straight-line depreciation and has a 40 per cent tax rate. What is the net present value for the machine?

• A)£162,640
• B)£2,640
• C)£30,080
• D)(£45,952)

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Definitions:

Internal Control

Processes and practices implemented to safeguard a company's assets, ensure financial reporting accuracy, and comply with regulations.

Customer's Ledger

A detailed record keeping of all transactions between a business and its customers, often part of the accounts receivable.

General Ledger

A comprehensive set of accounts that records all financial transactions of a business, used to prepare financial statements.

Accounts Receivable

Funds due to a company from its clients for goods or services rendered but payment has not been received yet.