A Manufacturing Company Is Considering Purchasing a New Machine to Replace

question 4

Multiple Choice

A manufacturing company is considering purchasing a new machine to replace the existing one to improve production efficiency.The new machine will cost the company $200,000 and is expected to sell for $15,000 in ten years.The old machine has a market value of $50,000 today and could be sold for $5,000 in ten years.Both machines have a CCA rate of 30% and the asset class will remain open, and the half-year rule applies in the first year.With the new machine, the company expects $50,000 savings in operating expenses per year.The company's tax rate is 40% and the cost of capital is 15%.What is the present value of the incremental CCA tax savings generated by the replacement decision? Include the half-year rule.

• A)$36,403
• B)$36,732
• C)$48,866
• D)$49,196

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Definitions:

Multinational Organizations

Corporations or enterprises that manage production or deliver services in more than one country, operating across national borders.

Indirect Costs

Expenses that are not directly attributable to a specific product or service but are necessary for the general operation of a business, such as utilities, rent, and administration.

Globalizing Operations

The process of expanding business operations on a global scale, adapting to international markets, and leveraging global efficiencies.

Supply Chain

The network of all entities involved in producing and delivering a product or service from supplier to customer.