Table 11.2 Computer Disk Duplicators, Inc. Has Been Considering Several Capital Investment

question 88

Multiple Choice

Table 11.2
Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2014. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent.
________________________________________________________ *Not applicable
-For Proposal 1, the initial outlay equals ________. (See Table 11.2)

• A) $1,380,000
• B) $1,440,000
• C) $1,500,000
• D) $1,620,000

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Definitions:

Stock Tender Offer

A public offer by a company or individual to purchase a certain amount of shareholders' stock at a specified price for a limited time.

Shares

Units of ownership interest in a corporation or financial asset, representing a portion of the corporation's capital.

Chose in Action

A personal right to property which can only be claimed or enforced by action, not by taking physical possession.

Surviving Corporation

The corporation that continues to exist after the merger or consolidation of two or more corporations, absorbing the assets and liabilities of the others.