Sam's Super Simonizing Is a Small Car Detailer That Is

question 31

Multiple Choice

Sam's Super Simonizing is a small car detailer that is replacing its upholstery cleaning machine at the beginning of the next fiscal. The old one will be worthless. A used one could be purchased leaving the company as well off as before. However, the preference is for a new one for $42,000 if it can be economically justified. To make a determination, after-tax cash flows for the investment period have to be calculated. The company estimates that the machine's efficiency will contribute to an improvement to EBIT of $7,400. Straight-line amortization is used and a projected lifetime of 10 years and no salvage value is expected. The company's tax rate is 28%, has no debt and its discount rate is 12%. The machine's CCA class has a rate of 25%. What is the after-tax cash flow at the end of Year 2?

• A) $6,040
• B) $6,238
• C) $8,469
• D) $10,925
• E) $12,899

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