FAR Corporation FAR Corporation Is Considering a New Project to Manufacture Widgets

question 56

Multiple Choice

FAR Corporation
FAR Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $150,000. The cost of shipping and installation is an additional $15,000. The asset will fall into the 3-year MACRS class. The year 1-4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $300,000 per year. Cost of goods sold will be 80% of sales. The project will require an increase in net working capital of $15,000. At the end of three years, FAR plans on ending the project and selling the manufacturing equipment for $35,000. The marginal tax rate is 40% and FAR Corporation's appropriate discount rate is 12%.
-Refer to FAR Corporation.What is the book value of the machine at the end of year 3?

• A) $44,995
• B) $22,215
• C) $11,115
• D) $66,675

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Definitions:

Anticipated Constant Growth

The expectation that an investment or entity will grow at a steady, predictable rate over time.

Investors

Parties or bodies that place capital, looking forward to monetary returns.

Currently Selling

Refers to goods or products that are actively being marketed and sold by a company.

Foreseeable Future

A term used to describe a period of time in which events are predicted or expected to occur.