Turntec Is Considering Replacing an Automatic Shuttle Machine That Has

question 3

Multiple Choice

Turntec is considering replacing an automatic shuttle machine that has a book value of $2,000 and a $0 market value with a more efficient machine that will cost $24,000.The annual net cash flows from the new equipment are expected to be $6,000 for the next 6 years.What is the net present value of this project? Assume the firm's cost of capital is 12 percent and its marginal tax rate is 40 percent.

• A)$666
• B)$1,466
• C)$1,866
• D)-$134

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Definitions:

Preferred Stock

a class of stock that typically provides dividends before dividends are distributed to common stockholders and may have priority over common stock in the event of liquidation.

Common Stock

Equity ownership in a corporation, with holders having a claim on the company’s profits in the form of dividends and voting rights in corporate governance.

No Par Value

Refers to shares issued without a stated face value, with their selling price determined by the issuing company.

Stated Value

A value that is assigned to no-par value stock by the company’s board of directors, which becomes the legal capital per share of the stock.