Arnold Company Is Acquiring a New Machine with a Life

question 100

Multiple Choice

Arnold Company is acquiring a new machine with a life of 5 years for use on its production line. The following data relate to this purchase: $\begin{array}{lr}\text { Cost of new machine }&\$100,000\\\text { Annual cost savings in cash expenses }&45,000\\\text { Terminal value } & 8,000 \\\text { Maintenance required in the 4th year } & 5,000 \\\text { Book value of the old machine } & 20,000\end{array}$ The new machine would replace an old fully-amortized machine. The old machine can be sold for $15,000 at the time the new equipment is acquired. The income tax rate is 30%, and the discount rate is 12%. Arnold uses the straight-line method for amortization on all machines (ignore the half-year convention) . Note: some amounts are rounded.
The present value of the maintenance cost in year 4 is:

• A) $2,226
• B) $3,180
• C) $954
• D) $420

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Definitions:

Maslow's Hierarchy

A psychological theory proposing a five-tier model of human needs, arranged in a hierarchy, that people are motivated to fulfill starting from basic needs to self-actualization.

Self-Actualization

The realization or fulfillment of one's talents and potentialities, considered as a drive or need present in everyone.

Esteem

The regard and respect a person or entity has from others, often based on achievements, characteristics, or contributions to the community.

Physiological

Related to the functions and activities of living organisms and their parts, including all physical and chemical processes.