Nuff Folding Box Company, Inc

question 63

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 payback period for the project is (See Figure 12.7)

• A) 2 years.
• B) between 3 and 4 years.
• C) 3 years.
• D) between 4 and 5 years.

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Definitions:

Owner Investments

Funds or assets introduced by the owner(s) into the business to provide financial resources for operations or expansion.

Revenues

The total income generated from sales of goods or services before any expenses are deducted.

Owner's Equity

The residual interest in the assets of an entity after deducting liabilities, representing the ownership interest of shareholders or proprietors.

Revenues

The total amount of income generated from the sale of goods or services related to a company’s primary operations.