Eureka Company Is Considering Replacing an Old Computer with a New

question 51

Multiple Choice

Eureka Company is considering replacing an old computer with a new computer. The following data relate to this investment decision:
$\begin{array}{|l|r|}\hline \text { Cost of the new computer } & \$ 40,000 \\\hline \text { Annual cash operating costs of the new computer } & \$ 10,000 \\\hline \text { Working capital needed now for the new computer } & \$ 2,000 \\\hline \text { Useful life of the new computer } & 6 \text { Years } \\\hline \text { Salvage value of the new computer at the End of six years } & \$ 3,000 \\\hline \text { Original cost of the old van two years ago } & \$ 18,000 \\\hline \text { Salvage value of the old computer now } & \$ 4,000 \\\hline \text { Salvage value of the old computer six years from now } & \$ 0 \\\hline\end{array}$
The new computer will belong to Class 10 with a maximum CCA rate of $30 \%$ . The income tax rate is also $30 \%$ , and the company's after-tax cost of capital is $12 \%$ .
- What is the approximate present value of the after-tax net annual cash operating inflows for all years?

• A) $12,334.
• B) $23,024.
• C) $28,780.
• D) $41,114.

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Definitions:

Stricter Standards

More rigorous and demanding criteria or rules that must be met, often applied to improve quality, safety, environmental protection, or efficiency.

Taxing Polluters

Imposing financial charges on individuals or companies who release pollutants into the environment, aiming to reduce environmental harm.

Hydrogen Gas

A colorless, odorless, tasteless, and highly flammable diatomic gas at standard conditions, often used as a fuel and in various industrial processes.

Motor Vehicle Fuels

Various types of fuel used to power motor vehicles, including gasoline, diesel, and alternative fuels like electric energy.