Arnold Company Is Acquiring a New Machine with a Life

question 22

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 for year 4, excluding the maintenance, is:

• A) $21,319
• B) $28,951
• C) $23,545
• D) $21,624

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Definitions:

Liver Sinusoid

Specialized, capillary-like blood vessels in the liver involved in the filtration and exchange of substances between the blood and liver cells.

Hepatic Portal System

A system of veins that carries nutrient-rich blood from the digestive organs to the liver for detoxification and metabolism before it enters the general circulation.

Detoxify Substances

The process by which toxic substances are removed or transformed into less harmful compounds in the body.

Capillary Beds

Networks of capillaries within body tissues that facilitate exchange of oxygen, nutrients, and waste products between blood and tissues.