A Firm Is Evaluating a New Machine to Replace an Existing

question 24

Multiple Choice

A firm is evaluating a new machine to replace an existing, older machine.The old (existing) machine is being depreciated at $20,000 per year, whereas the new machine's depreciation will be $18,000.The firm's marginal tax rate is 30 percent.Everything else equal, if the new machine is purchased, what effect will the change in depreciation have on the firm's incremental operating cash flows?

• A)There should be no effect on the firm's cash flows, because depreciation is a noncash expense.
• B)Operating cash flows will increase by $2,000.
• C)Operating cash flows will increase by $1,400.
• D)Operating cash flows will decrease by $600.
• E)None of the above is correct.

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Definitions:

Specific Trait

A characteristic or feature of an organism that can vary among individuals or over time.

Klinefelter Syndrome

A genetic condition in males caused by having one or more extra X chromosomes, often leading to reduced fertility and physical differences.

Sex Chromosome

Chromosomes that determine biological sex in an organism, with common examples being XX for females and XY for males in humans and other mammals.

Achondroplasia

A genetic disorder characterized by dwarfism, specifically affecting bone growth and resulting in disproportionately short limbs.