Computer Disk Duplicators, Inc $\text { "Not applicable }$ -For Proposal 2, the Cash Flow Pattern for the Replacement

question 84

Multiple Choice

Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2004. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate. The firm's cost of capital is 15 percent.
$\begin{array}{llll}&&\text { Proposal }\\\text { Type of Capital } & 1 & 2 & 3 \\\text { Budgeting Decision } & \text { Expansion } & \text { Replacement } & \text { Replacement }\\\hline&& \text { Mut Excl } & \text { Mut Excl } \\\text { Type of Project }&\text { Independent } & \text { with 3 } & \text { with 2 }\\\hline\text { Cost of new asset } & \$ 1,500,000 & \$ 200,000 & \$ 300,000 \\\text { Installation costs } & \$ 0 & \$ 0 & \$ 15,000 \\\text { CCA rate (new asset) } & 10 \% & 20 \% & 20 \%\\\text { Original cost of old asset } & \text { N/A* } & \$ 80,000 & \$ 100,000 \\\text { Purchase date (old asset) } & \text { N/A } & 1 / 1 / 1997 & 1 / 1 / 2000 \\\text { Sale proceeds (old asset) } & \text { N/A } & \$ 50,000 & \$ 120,000 \\\text { CCA rate (old asset) } & \text { N/A } & 20 \% & 20 \%\\\text { Annual net profits before }\\\text { depreciation \& taxes (old) }&N/A&\$30,000&\$25,000\\\text { Annual net profits before }\\\text { depreciation \& taxes (new) }&\$250,000&\$100,000&\$175,000\\\end{array}$
$\text { "Not applicable }$
-For Proposal 2, the cash flow pattern for the replacement project is

• A) a mixed stream and conventional.
• B) an annuity and non-conventional.
• C) a mixed stream and non-conventional.
• D) an annuity and conventional.

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Definitions:

Medical Necessity

The determination that the health care professional was acting according to standard practices in providing a particular procedure for an individual with a particular diagnosis. Also referred to as medically necessary.

National Correct Coding Initiative

The National Correct Coding Initiative (NCCI) is a Medicare initiative that prevents improper payment of services that should not be reported together according to standardized coding guidelines.

Symptom

A subjective sensation or departure from the norm as related by the patient.

Fowler's Position

A semi-upright sitting position used in medical settings to improve breathing and decrease pressure on the abdomen.