A New Replacement Machine Is Being Considered That Will Save

question 59

Multiple Choice

A new replacement machine is being considered that will save $105,000 per year in labor cost and $20,000 on maintenance. The company's marginal tax rate is 34%.  The replacement will also generate a tax savings from depreciation of $5,000. Estimate the incremental cash flow for the first year associated with buying the new machine.

• A)$87,500
• B)$82,500
• C)$42,500
• D)$51,100

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Definitions:

Total Variable Cost

The entire expense that varies directly with changes in production volume, including materials, labor, and other costs that increase or decrease with output level.

Relevant Range

The spectrum of operations where the premises regarding constant and fluctuating expenses hold true.

Sales Commissions

A portion of the selling price that is paid to sales employees as a reward for making sales or reaching targets.

Sales Volume

The total quantity of goods or services sold in a particular time period.