The Manager at the Key Factory Purchased a New Key-Fitting

question 98

Multiple Choice

The manager at the Key Factory purchased a new key-fitting machine at the plant in Delaware.The net investment is $450,000 and the expected average annual after-tax operating cash inflows of $122,000.The new machine results in depreciation deductions of $80,000 per year ($100,000 in annual depreciation for the new machine relative to $20,000 per year on the existing machine) .The increase in expected annual after-tax income?
Required
Compute the AARR.

• A)9%
• B)11%
• C)13%
• D)15%
• E)17%

---

Definitions:

Commodities

Basic goods used in commerce that are interchangeable with other goods of the same type.

Standard of Value

A base for comparison that allows the determination of the economic value of goods and services.

Short Run

A period in economics during which some factors of production are fixed, limiting the immediate ability of businesses to expand or change production levels.

Long Run

Refers to a period in which all factors of production and costs are variable, allowing for the full adjustment to changes.