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

question 92

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 tax effect of the sale of the existing asset is ________. (See Table 11.5)

• A) a tax liability of $2,340
• B) a tax benefit of $1,500
• C) a tax liability of $3,320
• D) a tax liability of $5,320

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Definitions:

Bidirectional Relationship

A relationship where changes in one variable lead to changes in another, and these changes can feed back to affect the original variable.

Bipolar Disorder

A mental health condition marked by extreme mood swings from high (mania or hypomania) to low (depression).

Cheerful

Characterized by good spirits or happiness, often showing in behavior or appearance.

Talkative

Tending to engage in excessive or frequent conversation.