To Expand Sales, Sandine Corporation Is Evaluating Whether to Purchase

question 3

Multiple Choice

To expand sales, Sandine Corporation is evaluating whether to purchase a machine to manufacture a new product line. Which of the following statements is correct concerning an expansion analysis like the one Sandine faces?

• A)The machine's annual depreciation expenses will be deducted from the firm's net income to calculate its supplemental operating cash flows.
• B)The new machine will be acceptable as long as the sum of its net cash flows is positive.
• C)The shipping and installation costs associated with purchasing the new machine are included in the computation of its initial investment outlay.
• D)The cost of a feasibility study that Sandine conducted last year to determine whether to further evaluate the introduction of the new product line should be included in the calculation of the new machine's initial investment outlay.
• E)The salvage value of the new machine should be included in the computation of its initial investment outlay.

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Definitions:

U.S.GAAP

United States Generally Accepted Accounting Principles, a collection of rules and guidelines designed to improve and standardize accounting practices.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset since it was acquired and put into use.

Balance Sheet

A financial statement that provides a snapshot of a company’s financial condition at a specific time, including assets, liabilities, and shareholders' equity.

Depreciation Methods

Various techniques used to systematically allocate the cost of a tangible asset over its useful life, including straight-line, declining balance, and units of production methods.