The Management of Jasper Equipment Company Is Planning to Purchase

question 29

Multiple Choice

The management of Jasper Equipment Company is planning to purchase a new milling machine that will cost $160,000 installed. The old milling machine has been fully depreciated but can be sold for $15,000. The new machine will be depreciated on a straight-line basis over its 10-year economic life to an estimated salvage value of $10,000. If this milling machine will save Jasper $20,000 a year in production expenses, what are the annual net cash flows associated with the purchase of this machine? Assume a marginal tax rate of 40 percent.

• A) $15,000
• B) $18,000
• C) $27,000
• D) $21,000

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Definitions:

Arbitration

A neutral third party issues a binding decision to resolve a dispute.

Active Listening

The practice of paying full attention, understanding, responding, and remembering what is being said in a conversation.

Workplace

A location or environment where people are employed and work is done, often referring to offices, factories, stores, or anywhere people perform their jobs.