TexMex Is Considering Replacing Its Tortilla Machine with a New

question 48

Multiple Choice

TexMex is considering replacing its tortilla machine with a new model that sells for $46,000 including the cost of installation. The old machine has been fully depreciated and has a $0 salvage value. The new machine will be depreciated as a 3-year MACRS asset. Revenues are expected to increase $18,000 per year over the 5-year life of the new machine. At the end of 5 years the new machine is expected to have no salvage value. What is the IRR for this project if TexMex has a required rate of return of 14% and a marginal tax rate of 40%? Operating costs are not expected to increase from the current level of $8,000 per year.

• A) 21.0%
• B) 14.0%
• C) 19.3%
• D) 5.7%

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Definitions:

Uptight

Describes someone who is anxious or unable to relax, often exhibiting tension in behavior or attitude.

Psychosexual Stage

Stages of a child's development identified by Freud, each characterized by a different focus of libido (sexual drive) satisfaction.

Oral Stage

A stage in Freud's psychosexual development theory focusing on infants' pleasure centers on the mouth during the first 18 months of life.

Personality Development

The ongoing process of developing and shaping one's personality, influenced by genetic, environmental, and social factors.