Nuff Folding Box Company, Inc

question 114

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 incremental CCA tax shield is___________

• A) $10,765
• B) $11,945
• C) $12,654
• D) $11,492

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Definitions:

Uncertainty

The state of having limited knowledge where it is impossible to exactly describe the existing state, a future outcome, or more than one possible outcome.

Mission Statement

A formal summary of the aims and values of a company, organization, or individual.

Action Statement

A clear, concise declaration outlining specific actions to be undertaken to achieve a certain objective.

Analyzer Organizations

Organizations that maintain their current products and markets while simultaneously exploring new opportunities, blending stability with innovation.