Stanton Inc

question 102

Multiple Choice

Stanton Inc.is considering the purchase of a new machine which will reduce manufacturing costs by R5,000 annually and increase earnings before depreciation and taxes by R6,000 annually.Stanton will use the MACRS method to depreciate the machine, and it expects to sell the machine at the end of its 5-year operating life for R10,000 before taxes.Stanton's marginal tax rate is 40 percent, and it uses a 9 percent required rate of return to evaluate projects of this type.If the machine's cost is R40,000, what is the project's NPV?

• A) R1,014
• B) R2,292
• C) R7,550
• D) R817
• E) R5,040

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Definitions:

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