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:

Intangible Products

Products that cannot be touched or physically measured, including services, digital goods, and intellectual properties.