Colors and More Is Considering Replacing the Equipment It Uses

question 27

Multiple Choice

Colors and More is considering replacing the equipment it uses to produce crayons. The equipment would cost $1.37 million, have a 12-year life, and lower manufacturing costs by an estimated $304,000 a year. The equipment will be depreciated using straight-line depreciation to a book value of zero. The required rate of return is 15 percent and the tax rate is 35 percent. What is the net income from this proposed project?

• A)$18,508.75
• B)$40,211.24
• C)$66,441.67
• D)$123,391.67
• E)$136,709.48

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Definitions:

Surety

A person who promises to perform the same obligation as another person (the principal) and who is jointly liable along with the principal for that obligation’s performance.

Exoneration

The act of being relieved from a responsibility, obligation, or hardship; often used in legal contexts to denote clearing from guilt or blame.

Artisans Liens

Legal claims granted to artisans or mechanics who have rendered services or provided materials, securing their right to payment.

Statute

A written law passed by a legislative body at the national or local level.