Chung Incis Considering the Replacement of a Piece of Equipment with with a Newer

question 55

Multiple Choice

Chung Inc.is considering the replacement of a piece of equipment with a newer model.The following data has been collected: $\begin{array}{lrr}&\text { Old Equipment }&\text { New Equipment }\\\text { Purchase price } & \$ 225,000 & \$ 375,000 \\\text { Accumulated depreciation } & 90,000 & -0- \\\text { Annual operating costs } & 300,000 & 240,000\end{array}$ If the old equipment is replaced now, it can be sold for $60,000.Both the old equipment's remaining useful life and the new equipment's useful life is 5 years.
- What is the net cost of the new equipment?

• A)$375,000
• B)$315,000
• C)$150,000
• D)$75,000

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Definitions:

Zero-Coupon Bond

A bond that does not pay periodic interest payments and is instead issued at a significant discount to its face value and pays its full face value at maturity.

Yield To Maturity

The total return anticipated on a bond if it is held until its maturity date, taking into account its current market price, par value, coupon interest rate, and time to maturity.

Par Value

The stated value of a bond, stock share, or coupon as specified by the issuer.

Conversion Premium

The additional amount over the current value that an investor pays to convert a convertible security into a specified number of shares of common stock.