Tony Company Is Considering Replacing a Machine That Is Presently

question 55

Multiple Choice

Tony Company is considering replacing a machine that is presently used in the production of its product. The following data are available: $\begin{array}{lll}&& \text { Replacement } \\&\text { Old Machine } & \text { Machine }\\\text { Original cost } & \$ 295,000 & \$ 188,000 \\\text { Useful lif e in years } & 11 & 5 \\\text { Current age in years } & 6 & 0 \\\text { Book value } & \$ 130,000 & - \\\text { Disposal value now } & \$ 52,000 & - \\\text { Disposal value in 5 years } & 0 & 0 \\\text { Annual cash op erating } & \$ 39,000 & \$ 24,000\\\text {costs}\end{array}$ is irrelevant.

• A) The disposal value of the old machine
• B) The book value of the old machine
• C) The annual operating cost of the old machine
• D) The original cost of the replacement machine

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Definitions:

Fair Return

The reasonable profit that investors can expect to earn from their investment, considering the risk involved.

Market Signals

Indications or signs derived from market data that can suggest the future direction of market prices.

Sarbanes-Oxley Act

A U.S. federal law enacted in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures.

Corporate Governance

A system of rules, practices, and processes by which a company is directed and controlled, focusing on balancing the interests of stakeholders.