A Firm Is Evaluating a New Machine to Replace One

question 8

Multiple Choice

A firm is evaluating a new machine to replace one of its existing, older machines. If the old machine is replaced, the change in the annual depreciation expense will be $3,000. The firm's marginal tax rate is 30 percent. Which of the following statements is correct?

• A)The depreciation expense does not affect the calculation of the supplemental operating cash flows, so it should not be considered in the analysis of the machine.
• B)The depreciation expense can be added to the machine's after-tax net operating income to determine its supplemental operating cash flows.
• C)The depreciation expense should be added to the machine's initial investment outlay.
• D)The depreciation expense is included in the computation of the machine's terminal cash flows.
• E)The depreciation expense should be included in the analysis only if it exceeds the tax expense associated with the machine.

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Definitions:

Consumer Behaviours

The actions and decision processes of individuals or groups in purchasing and using products or services.

Attitude

A mental inclination shown through the assessment of a specific entity either positively or negatively.

Value-Expressive Function

A function of attitudes or behaviors that expresses an individual's central values and self-concept.

Utilitarian Function

The practical and functional aspects of products or behaviors that fulfill basic needs or provide tangible benefits to the user.