Nighthawk Inc

question 49

Multiple Choice

Nighthawk Inc.is considering disposing of an old machine with a book value of $22,500 and an estimated remaining life of three years.The old machine can be sold for $6,250.A new machine with a purchase price of $68,750 is being considered a replacement.It will have a useful life of three years and no residual value.It is estimated that the annual variable manufacturing costs will be reduced from $43,750 to $20,000 if the new machine is purchased.The differential effect on income for the entire three years for the new machine is

• A) $8,750 increase
• B) $31,250 decrease
• C) $8,750 decrease
• D) $2,925 decrease

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Definitions:

Interest Method

A method used in finance to calculate the interest portion of a payment or the return on an investment over a period of time.

Semiannual Interest

Interest that is both computed and disbursed semi-annually on an investment or loan.

Bond Discount

The financial disparity that occurs when a bond is sold for an amount below its stated face value, comparing its selling price to its face value.

Interest Method

A financial calculation used to determine the amount of interest due or earned over a specific period of time, considering factors like principal, rate, and time.