Nuff Folding Box Company, Inc

question 24

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 present value of the project's five-year incremental after-tax operating income is___________

• A) $32,820
• B) $41,421
• C) $36,769
• D) $44,820

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Definitions:

Ownership

The state or fact of legal possession and control over property, which can include both tangible assets like real estate and intangible ones like intellectual property.

Stock

Shares of ownership in a corporation, representing a claim on part of its assets and earnings.

Investors

Individuals or entities that allocate capital with the expectation of receiving financial returns.

Income Statement

A financial report that outlines a company's revenues, expenses, and profits over a specific period, typically a quarter or year, to show its performance.