Eureka Company Is Considering Replacing an Old Computer with a New

question 74

Multiple Choice

Eureka Company is considering replacing an old computer with a new computer. The following data relate to this investment decision:



The new computer will belong to Class 10 with a maximum CCA rate of 30%. The income tax rate is also 30%, and the company's after-tax cost of capital is 12%
-What is the approximate effective cost now of the working capital component of the investment decision?

• A) $0.
• B) $986.
• C) $2,000.
• D) $3,014.

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Definitions:

Borrowing Capacity

Borrowing capacity is the maximum amount of credit that a person or organization can obtain, determined by lenders based on the borrower’s financial health and credit history.

Outside Funds

Capital sourced from external investors or institutions, outside of the company’s existing financial resources, used for expansion, operations, or investment.

Debt

Money that is owed or due to be paid to someone else, often resulting from loans or credit.

Equity

Equity represents the value of an owner's interest in a property or business, after deducting liabilities.