Your Company Is Considering the Purchase of a New Machine

question 104

Multiple Choice

Your company is considering the purchase of a new machine. The original cost of the old machine was $100,000; it is now 5 years old, and it has a current market value of $40,000. The old machine is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $50,000 and an annual depreciation expense of $10,000. The old machine can be used for 6 more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new machine whose cost is $80,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new machine are $13,000 a year over its full MACRS depreciable life. Depreciation is computed using MACRS over a 5-year life, and the cost of capital is 10 percent. Assume a 40 percent tax rate. What will the year 1 operating cash flow for this project be?

• A) $2,200
• B) $4,900
• C) $10,200
• D) $14,200

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Definitions:

Nasal Cavity

The large air space behind the nose, involved in breathing and housing the olfactory neurons.

Chemoreceptors

Sensory cells or organs specialized in detecting changes in chemical concentrations, often used in taste, smell, and regulation of breathing.

Ventilation

The process of moving air in and out of the lungs to facilitate gas exchange with the internal environment, primarily involving oxygen and carbon dioxide.

Blood pH

The measure of acidity or alkalinity of the blood, which is typically maintained at around 7.35 to 7.45.