The Munsell Colour Company Is Considering the Purchase of a New

question 62

Multiple Choice

The Munsell Colour Company is considering the purchase of a new batch polymer-bonding machine for producing its number one line of crayons.Although the machine being considered will not produce any increase in sales revenues,it will result in the before-tax reduction of labour costs by $200,000 per year.The machine has a purchase price of $250,000,and it would cost an additional $10,000 to install the machine.In addition,to operate this machine,inventory must be increased by $15,000.Operating expenses are expected to grow at 2.5%.The machine is categorized as 10-year property.After 2 years,it can be sold for $150,000.The tax rate is 34% and the cost of capital is 15%.What is the NPV for the proposed acquisition if the cost of capital is 15%?
MACRS Depreciation Rates

• A) $74,392
• B) $81,567
• C) $89,541
• D) $96,135
• E) $99,792

---

Definitions:

Manufacturing And Operations

The processes involved in the production of goods and the management of those processes, aiming at efficiency and quality.

Skilled Workers

Employees who have specialized training, knowledge, and abilities in their field, often requiring formal education or certification.

Sales Representatives

Individuals who sell products or services on behalf of a company, often working on commission.

Distribution Channels

The pathways through which goods and services flow from the producer to the consumer or end-user.