Stonewood Manufacturing Is Evaluating Whether to Replace One of Its

question 4

Multiple Choice

Stonewood Manufacturing is evaluating whether to replace one of its existing machines with a new, more technologically advanced one. Which of the following statements concerning a replacement decision analysis is correct?

• A)When computing the supplemental operating cash flows associated with the purchase of the new machine, only the after-tax cash flows that the new machine is expected to generate each year should be included in the computation.
• B)The net cash flow from the sale of old machine should be included as part of the new machine's initial investment outlay.
• C)The annual depreciation expense associated with the new machine should be included in the computation of the new machine's terminal cash flow.
• D)If the old machine is sold for a loss when it is replaced, the loss is treated as a cash outflow in the computation of the new machine's initial investment outlay.
• E)An increase in the net working capital that occurs when the new machine is purchased is treated as a cash inflow when its initial investment outlay is computed.

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Definitions:

Crude Oil Refining

The industrial process of transforming crude oil into useful petroleum products such as fuel, gasoline, and diesel.

Light Gases

Gases with low molecular weights, such as hydrogen, helium, or methane, that are often used in applications requiring low density.

Lightest Fraction

In petrochemistry, refers to the fraction of a crude oil that contains the lightest, most volatile components, such as gases and small hydrocarbons.

Volatile Components

Substances that can easily vaporize at room temperature or under mild heating, often contributing to the aroma of foods or products.