Table 11.4 Computer Disk Duplicators, Inc. Has Been Considering Several Capital Investment

question 86

Multiple Choice

Table 11.4
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 3, the tax effect on the sale of the existing asset results in ________. (See Table 11.4)

• A) $8,000 tax liability
• B) $16,000 tax liability
• C) $20,000 tax liability
• D) $23,200 tax liability

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Definitions:

Control Circuit

An electrical circuit designed to control the operation of mechanical devices or systems.

Contactor Unit

An electromechanical switch used for switching an electrical power circuit, often found in control and automation systems.

Overload Unit

A protective device used in electrical circuits to prevent motors and other devices from operating at currents that are higher than their safe operating limits.

Electric Motor

A device that converts electrical energy into mechanical energy.