The Munsell Colour Company Is Considering the Purchase of a New

question 16

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.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 are the operating cash flows at the end of Year 1?
MACRS Depreciation Rates

• A) $132,000
• B) $136,420
• C) $140,840
• D) $165,780
• E) $175,240

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Definitions:

Transfer Warranties

Assurances made by a seller to a buyer about the quality, performance, or condition of a good or title being transferred.

Altered

Altered denotes something that has been changed, modified, or adjusted from its original form or state.

Negotiable

A term indicating that the terms and conditions of something, such as a financial instrument or contract offer, can be discussed and altered by involved parties.

Conversion

The unauthorized act of taking someone else's property and converting it to one's own use, violating the owner's rights.