A Company Can Buy a Machine That Is Expected to Have

question 50

Multiple Choice

A company can buy a machine that is expected to have a three-year life and a $30,000 salvage value. The machine will cost $1,800,000 and is expected to produce a $200,000 after-tax net income to be received at the end of each year. If a table of present values of 1 at 12% shows values of 0.8929 for one year, 0.7972 for two years, and 0.7118 for three years, what is the net present value of the cash flows from the investment, discounted at 12%?

• A) $118,855
• B) $583,676
• C) $629,788
• D) $705,391
• E) $1,918,855

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Definitions:

Tax Burden

Refers to the total amount of tax that individuals or businesses must pay, relative to their income or profit.

Binding Price Ceiling

A limit imposed by the government on how high a price can be charged for a good or service, which is set below the equilibrium price, causing a shortage.

Tax Revenue

Government income obtained from taxation.

Payroll Tax

Duties levied on employees or the companies that employ them, computed as a percentage of the remuneration the employees are given.