Tech Engineering Company Is Considering the Purchase of a New

question 149

Multiple Choice

Tech Engineering Company is considering the purchase of a new machine to replace an existing one.The old machine was purchased 5 years ago at a cost of $20,000,and it is being depreciated on a straight line basis to a zero salvage value over a 10-year life.The current market value of the old machine is $14,000.The new machine,which falls into the MACRS 5-year class,has an estimated life of 5 years,it costs $30,000,and Tech plans to sell the machine at the end of the 5th year for $1,000.The new machine is expected to generate before-tax cash savings of $3,000 per year.The company's tax rate is 40 percent.What is the IRR of the proposed project?

• A) 4.1%
• B) 2.2%
• C) 0.0%
• D) −1.5%
• E) −3.3%

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Definitions:

Unpredictable

Not able to be predicted or foreseen, indicating randomness or lack of a discernible pattern in behavior or events.

Logical

Pertaining to the use of reason or logic.

Other-race Effect

The inclination to more readily identify facial features of the race with which one is most acquainted, usually being their own.

Ingroup Bias

The tendency to favor and extend loyalty to members of one's own group over those from other groups.