Creighton Industries Is Considering the Purchase of a New Strapping

question 55

Multiple Choice

Creighton Industries is considering the purchase of a new strapping machine,which will cost $150,000,plus an additional $10,500 to ship and install.The new machine will have a 5-year useful life and will be depreciated to zero using the straight-line method.The machine is expected to generate new sales of $45,000 per year and is expected to save $16,000 in labor and electrical expenses over the next 5-years.The machine is expected to have a salvage value of $20,000.Creighton's income tax rate is 35%.Creighton uses a 12.5% discount rate for capital budgeting purposes.What is the machine's NPV?

• A) $29,888
• B) $25,062
• C) $22,153
• D) $27,894

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Definitions:

Market Transactions

Exchanges of goods, services, or assets between parties in a market.

Rejection

Rejection involves the dismissal or refusal of an idea, proposal, or application, often after consideration or evaluation.

Cooperation

The process of groups or individuals working together toward common goals or interests.

Dictator Game

A mutually anonymous behavioral economics game in which one person (“the dictator”) unilaterally determines how to split an amount of money with the second player.