McPherson Company Must Purchase a New Milling Machine A)$8,878
B)$9,345
C)$9,837
D)$10,355
E)$10,900

question 14

Multiple Choice

McPherson Company must purchase a new milling machine.The purchase price is $50,000,including installation.The machine has a tax life of 5 years,and it can be depreciated according to the following rates.The firm expects to operate the machine for 4 years and then to sell it for $12,500.If the marginal tax rate is 40%,what will the after-tax salvage value be when the machine is sold at the end of Year 4? $$\begin{array} { c c } \text { Year } & \text { Depreciation Rate } \\\hline 1 & 0.20 \\2 & 0.32 \\3 & 0.19 \\4 & 0.12 \\5 & 0.11 \\6 & 0.06\end{array}$$

• A)$8,878
• B)$9,345
• C)$9,837
• D)$10,355
• E)$10,900

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Definitions:

Systematic Risk

A type of risk associated with the entire market or a particular market segment that remains unaffected by diversification efforts.

Risk Free Rate

The rate of return on an investment with no risk of financial loss, often represented by government bonds.

Beta

A calculation of the extent to which a stock's price swings in comparison with the overall market.

Market Risk

The risk of losses in investments due to factors that affect the overall performance of the financial markets.