QRW CorpNeeds to Replace an Old Lathe with a New,more Efficient

question 6

Multiple Choice

QRW Corp.needs to replace an old lathe with a new,more efficient model.The old lathe was purchased for $50,000 nine years ago and has a current book value of $5,000.(The old machine is being depreciated on a straight-line basis over a ten-year useful life.) The new lathe costs $100,000.It will cost the company $10,000 to get the new lathe to the factory and get it installed.The old machine will be sold as scrap metal for $2,000.The new machine is also being depreciated on a straight-line basis over ten years.Sales are expected to increase by $8,000 per year while operating expenses are expected to decrease by $12,000 per year.QRW's marginal tax rate is 40%.Additional working capital of $3,000 is required to maintain the new machine and higher sales level.The new lathe is expected to be sold for $5,000 at the end of the project's ten-year life.What is the incremental free cash flow during year 1 of the project?

• A) $12,800
• B) $14,400
• C) $11,400
• D) $15,200

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Definitions:

Design Consistency

The uniformity in style, formatting, and appearance across multiple components of a project or multiple projects to enhance user experience and brand recognition.

Design Plans

Detailed drawings or schematics that outline the architecture, functionality, and appearance of a project or product.

Visuals Drive

The use of images, videos, or other visual elements to capture attention, convey information, or evoke emotions.

Visuals

Graphic elements such as charts, diagrams, photographs, and videos used to convey information or complement text.