Pixaire Purchased a New Mixer to Replace an Older System

question 32

Multiple Choice

Pixaire purchased a new mixer to replace an older system. The older system, which cost $100,000, is 5 years old now and was being depreciated over a MACRS life at 7 years. The new mixer, which will cost $270,000, will also be depreciated as a 7-year asset for MACRS purposes. The new mixer is expected to increase revenues by $64,000 with no additional operating expenses. Determine the net operating cash flows in year 2 for the new mixer. Assume a 40% tax rate. Use the rounded MACRS schedule listed below:
(7-Year Depreciation Schedule: 14%, 25%, 18%, 12%, 9%, 9%, 9%, 4%)

• A) $66,974
• B) $66,124
• C) $61,277
• D) $64,229

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Definitions:

Customer-satisfaction

A measure of how products or services supplied by a company meet or surpass customer expectation.

Supply Partnership

A strategic arrangement between a supplier and a buyer aimed at improving product quality, reducing costs, and ensuring timely delivery.

Harley-Davidson

An American motorcycle manufacturer known for its heavyweight motorcycles designed for highway cruising.

Motorcycle Seats

Components of a motorcycle designed to provide a rider and possibly a passenger with a comfortable place to sit while riding.