Stanton Inc

question 24

Multiple Choice

Stanton Inc. is considering the purchase of a new machine which will reduce manufacturing costs by $5,000 annually and increase earnings before depreciation and taxes by $6,000 annually. Stanton will use the MACRS method to depreciate the machine, and it expects to sell the machine at the end of its 5-year operating life for $10,000 before taxes. Stanton's marginal tax rate is 40 percent, and it uses a 9 percent cost of capital to evaluate projects of this type. If the machine's cost is $40,000, what is the project's NPV?

• A) $1,014
• B) $2,292
• C) $7,550
• D) $ 817
• E) $5,040

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Definitions:

Wheat

A cereal grain that is a staple food in many parts of the world, used to make products like bread, pasta, and pastry.

Monopolistically Competitive

Describes a market structure in which many firms sell products that are similar but not identical, allowing for some degree of market power.

Market Structure

The organization and characteristics of a market, including the number and size of sellers, product differentiation, and ease of entry and exit.

Monopolistic Competition

A market structure in which many firms sell products that are similar but not identical.