Linex Corporation Is Considering the Purchase of a New Machine

question 76

Multiple Choice

Linex Corporation is considering the purchase of a new machine that costs $18,000 and has an expected useful life of 10 years. Linex estimates that the machine will save the company $3,000 per year over the 10-year life. The company's hurdle rate is 12%. The present value annuity factors of 10, 12, and 14% for 10 years are 6.145, 5.650, and 5.216, respectively. The present value of $1 discounted for 10 years at 12% is 0.322. Given the data provided, if the machine had a salvage value of $4,000, the net present value of the machine would be:

• A) $238
• B) $957
• C) $1,723
• D) $2,950

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Definitions:

Washing Mitt

A tool made of soft material used for washing surfaces, typically vehicles, without causing scratches.

Activity-Based Costing

A costing method that assigns overhead and indirect costs to related products and services based on the activities they require.

Activity Rate

A predetermined overhead rate in activity-based costing. Each activity cost pool has its own activity rate which is used to apply overhead to products and services.

Estimated Overhead

Projected costs for running a business that does not directly tie to specific product manufacturing, such as rent, utilities, and management salaries.