Nuff Folding Box Company, Inc

question 23

Multiple Choice

Nuff Folding Box Company, Inc. is considering purchasing a new glueing machine. The glueing machine costs $50,000 and requires installation costs of $2,500. This outlay would be partially offset by the sale of an existing gluer. The existing gluer originally cost $10,000 and is four years old. It is being depreciated using the Class 10 CCA rate of 30% and can currently be sold for $15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the existing machine's market value would be zero. Over its five-year life, the new machine should reduce operating costs (excluding depreciation) by
$17,000 per year. The new machine will be depreciated using the Class 10 CCA rate of 30%. The firm has a 12 percent cost of
capital and a 40 percent tax on ordinary income and capital gains.
-The tax effect of the sale of the existing asset is

• A) a tax liability of $2,340
• B) a tax liability of $1,000
• C) a tax benefit of $1,500
• D) a tax liability of $2,000

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Definitions:

Thermoception

The sensory perception of temperature.

Gestalt

A concept originating from psychology that emphasizes the human tendency to perceive the whole rather than the individual parts, suggesting that the whole is greater than the sum of its parts.

Figure-Ground Relationship

A visual perception principle where an object (the figure) is perceived distinctly from its background (the ground).

Principle of Closure

A gestalt psychology principle suggesting that individuals tend to perceive incomplete figures as complete.