A New Machine Can Be Purchased for $1,200,000

question 118

Multiple Choice

A new machine can be purchased for $1,200,000.It will cost $35,000 to ship and $15,000 to modify the machine.A $12,000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm,which would have otherwise been sold for $180,000.The firm will borrow $750,000 to finance the acquisition.Total interest expense for 5-years is expected to approximate $350,000.What is the investment cost of the machine for capital budgeting purposes?

• A) $2,180,000
• B) $1,780,000
• C) $1,442,000
• D) $1,430,000

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Definitions:

Canadian Dollars

The currency of Canada, represented by the symbol CAD, and used for all financial transactions within the country.

Euros

The official currency used by 19 of the 27 European Union countries, known collectively as the Eurozone.

Risk-Free Rate

The theoretical return on an investment with no risk of financial loss, often based on government bonds.

Discount Rate

The discount rate is the interest rate used to determine the present value of future cash flows in discounted cash flow analysis, reflecting the opportunity cost of time and risk.