Your Company Is Considering the Purchase of a New Machine

question 42

Multiple Choice

Your company is considering the purchase of a new machine. The original cost of the old machine was $25,000; it is now five years old, and it has a current market value of $10,000. 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 $12,500 and an annual depreciation expense of $2,500. 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 $20,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new machine are $3,500 a year over its full MACRS depreciable life. Depreciation is computed using MACRS over a five-year life, and the cost of capital is 13 percent. Assume a 40 percent tax rate. What will the year 1 operating cash flow for this project be?

• A)$984
• B)$1,200
• C)$2,700
• D)$5,000

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Definitions:

Creative Best

The highest level of creativity and innovation an individual or group can achieve.

Creative Self-efficacy

An individual's belief in their own ability to produce new and useful ideas.

Multicultural Experiences

Engagements or interactions which involve or are derived from several different cultures, enhancing understanding and appreciation of diversity.

Unconventional Thinking

A non-traditional or creative approach to problem-solving and idea generation.