Your Company Is Considering the Purchase of a New Machine

question 84

Multiple Choice

Your company is considering the purchase of a new machine. The original cost of the old machine was $75,000; it is now five years old, and it has a current market value of $35,000. The old machine is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $37,500 and an annual depreciation expense of $7,500. The old machine can be used for six more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new machine whose cost is $80,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new machine are $15,000 a year over its full MACRS depreciable life. Depreciation is computed using MACRS over a five-year life, and the cost of capital is 15 percent. Assume a 40 percent tax rate. What will the year 1 operating cash flow for this project be?

• A)$3,900
• B)$4,480
• C)$12,400
• D)$16,600

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Definitions:

Aggressive Acts

Acts characterized by hostility or violence towards others.

Evolutionary

Pertaining to the process by which organisms change over generations due to inherited traits, natural selection, and adaptation.

Cognitive

Relating to mental processes involved in perception, memory, judgment, and reasoning.

Dispositional Patterns

Enduring characteristics and behaviors that individuals consistently demonstrate across different situations.