Disquotek, Inc What Is the Relevant After-Tax Annual Cash Operating Cost Associated

question 58

Multiple Choice

Disquotek, Inc., is a software manufacturer. Managers are considering a new equipment proposal. The income tax rate is 40%, and the discount rate is 10%. The following data are available: $\begin{array}{lrc}& \underline{\text { Old Equipment}}& \underline{\text { New Equipment}}\\ \text { Purchase cost } & \$ 12,000 & \$ 36,000 \\\text { Annual amortization } & 1,500 & 4,500 \\\text { Remaining useful life (years) } & 8 & 8 \\\text { Current selling price } & 14,400 & \text { not applicable } \\\text { Selling price in 8 years } & 1,000 & 2,000 \\\text { Annual operating costs } & 14,000 & 8,000\end{array}$

What is the relevant after-tax annual cash operating cost associated with this decision?

• A) $8,000
• B) $6,000
• C) $3,600
• D) $2,400

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