Colortex, Incorporated Is Considering the Purchase of a New Machine

question 43

Multiple Choice

Colortex, Incorporated is considering the purchase of a new machine. The machine will cost $105,000. The firm currently generates an annual cash flow of $150,000 a year. It is expected
That the machine will increase annual cash flows to $170,000. The machine is expected to last 7
Years after which both its book value and market value will be zero. What is the NPV of the
New machine if Colortex requires a 14% return on this project?

• A)-$19,234
• B)+$174,909
• C)+$37,857
• D)+$624,012

---

Definitions:

Tariffs and Quotas

Government-imposed regulations where tariffs are taxes on imported goods, and quotas are limits on the amount of a product that can be imported.

Smoot-Hawley Tariff Act

Legislation passed in 1930 that established very high tariffs. Its objective was to reduce imports and stimulate the domestic economy, but it resulted only in retaliatory tariffs by other nations.

Global Trade War

A situation where countries impose tariffs or other trade barriers on each other in response to trade disputes, leading to reduced international trade.

Great Depression

A severe worldwide economic downturn that took place during the 1930s, leading to high unemployment and significant economic distress.