Table 11.5 Nuff Folding Box Company, Inc. Is Considering Purchasing a New

question 116

Multiple Choice

Table 11.5
Nuff Folding Box Company, Inc. is considering purchasing a new gluing machine. The gluing machine costs $50,000 and requires installation costs of $2,500. This outlay would be partially offset by the sale of an existing gluer. The existing gluer originally cost $10,000 and is four years old. It is being depreciated under MACRS using a five-year recovery schedule and can currently be sold for $15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the existing machine's market value would be zero. Over its five-year life, the new machine should reduce operating costs (excluding depreciation) by $17,000 per year. Training costs of employees who will operate the new machine will be a one-time cost of $5,000 which should be included in the initial outlay. The new machine will be depreciated under MACRS using a five-year recovery period. The firm has a 12 percent cost of capital and a 40 percent tax on ordinary income and capital gains.
-The internal rate of return for the project is ________. (See Table 11.5)

• A) between 7 and 8 percent
• B) between 9 and 10 percent
• C) greater than 12 percent
• D) between 10 and 11 percent

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Definitions:

Balance of Probabilities

The standard of proof in civil cases, where the likeliness of one's claim being true must be greater than 50%.

Prosecutor

An attorney or legal official who presents the case against an individual accused of breaking the law in a criminal trial.

Jurisdiction

The legal authority granted to a court to hear and decide cases within a specified geographic area or over certain types of legal cases.

Superior Court

The highest trial court in a province or territory.