Arnold Company Is Acquiring a New Machine with a Life

question 93

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 cash flows from the sale of the old machine is:

• A) $15,000
• B) $13,395
• C) $16,340
• D) $17,860

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Definitions:

Practical Intelligence

The ability to solve everyday problems through skilled reasoning that relies on tacit knowledge.

Interpersonal Intelligence

The capacity to understand the intentions, motivations, and desires of other people and to work effectively with others.

Analytic Intelligence

The ability typically measured by intelligence tests and crucial for academic success.

Tacit Intelligence

A form of intelligence that is understood or implied without being stated openly, often considered a component of practical intelligence.