Springer Company Is Considering the Purchase of a New Machine

question 18

Multiple Choice

Springer Company is considering the purchase of a new machine for £80,000. The machine would generate an annual cash flow before depreciation and taxes of £28,778 for five years. At the end of five years, the machine would have no salvage value. The company's cost of capital is 12 per cent. The company claims capital allowances based on straight-line depreciation and has a 40 per cent tax rate. What is the net present value for the machine?

• A)£5,318
• B)£-0-
• C)£85,318
• D)£23,744

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Definitions:

Administration Department

A sector of a business or organization responsible for administrating policies, procedures, and administrative support.

Information Technology

The application of computers, storage systems, networking components, and other tangible devices, frameworks, and methodologies to generate, manipulate, preserve, protect, and share every type of digital data.

Prenatal Care

Medical and healthcare provided to a pregnant woman before birth to ensure the health of both mother and baby.

Postnatal Care

Care given to the mother and her newborn baby immediately after the birth and for the first six weeks of life.