The Weis Corp

question 1

Multiple Choice

The Weis Corp. purchased a new conveyor system to replace an older less automated system. The old system, which was 10 years old, was being depreciated on a straight-line basis over its 20-year life at $25,000 per year. The new system will be depreciated as a 7-year asset for MACRS purposes. The more efficient machine, which costs $520,000 installed, will reduce operating costs by $74,000 per year. Compute the net cash flows in year 3 for the new system. Assume a 40% tax rate. Use the rounded MACRS schedule listed below:
(7-Year Depreciation Schedule: 14%, 25%, 18%, 12%, 9%, 9%, 9%, 4%)

• A) $71,840
• B) $80,779
• C) $68,600
• D) $149,917

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Definitions:

Exchange Rate

The amount one currency is valued at when translated into another currency.

Kilogram

The base unit of mass in the International System of Units (SI), equivalent to 1,000 grams or approximately 2.20462 pounds.

Long-Run Exchange Rate

The exchange rate that reflects the underlying fundamentals of an economy over a longer period, free from short-term fluctuations.

Subsidiary

A company controlled by another company, often referred to as its parent company.