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

question 36

Multiple Choice

Table 11.2
Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2004. 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 2, the cash flow pattern for the replacement project is ________. (See Table 11.2)

• A) a mixed stream and conventional
• B) a mixed stream and non-conventional
• C) an annuity and conventional
• D) an annuity and non-conventional

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Definitions:

Billion

A numerical value equivalent to 1,000 million, often used to denote a very large quantity or amount in financial and statistical contexts.

Opportunity Costs

The loss of potential gain from other alternatives when one alternative is chosen, representing the benefits one misses out on when making a decision.

Excess Capacity

Excess capacity refers to a situation where a company is operating below its maximum output level, indicating that it can produce more with the current resources if there is higher demand.

Expansionary Fiscal Policy

To fight recessions, the federal government lowers taxes and/or raises spending.