Alloy Corp

question 97

Multiple Choice

Alloy Corp.is considering the acquisition of a new processing line.The processor can be purchased for $3,750,000; it will have a 10-year useful life.It will cost $165,000 to ship and $85,250 to install the processor.A recently completed feasibility study that was performed at a cost of $65,000 indicated that the processor would produce a positive NPV.The processor will be depreciated using the straight-line method to zero expected salvage value.Studies have shown that employee-training expenses will be $125,000.What will be the annual depreciation expense of the processing line for capital budgeting purposes?

• A) $375,000
• B) $419,025
• C) $390,000
• D) $400,025

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Definitions:

Initial Value Method

The procedure of accounting for an investment at its cost at the time of purchase without subsequent adjustment for changes in market value.

Dividends

Payments made to shareholders out of a corporation's profits as a return on their investment.

Consolidated Net Income

The total profit of a parent company and its subsidiaries after taxes and interest, reflecting the group's overall financial performance.

Initial Value Method

A financial accounting approach for investments where the investment is recorded at its acquisition cost without subsequent adjustment for changes in market value.