Laws Corporation Is Considering the Purchase of a Machine Costing

question 34

Multiple Choice

Laws Corporation is considering the purchase of a machine costing $16,000. Estimated cash savings from using the new machine are $4,120 per year. The machine will have no salvage value at the end of its useful life of six years and the required rate of return for Laws Corporation is 12%. The machine's internal rate of return is closest to (Ignore income taxes.) :Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

• A) 12%
• B) 14%
• C) 16%
• D) 18%

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Definitions:

Cash Dividend

A distribution of profits by a corporation to its shareholders in the form of cash.

Cash

Money in the form of coins or banknotes, especially that held by a person or business.

Stock Investments

Financial assets referring to shares purchased in other companies intended for income generation or capital gains.

Cost Method

An investment accounting approach where the investment is recorded at cost and adjusted only for dividends received, not market value changes.