The Morgan Company Has Been Awarded a Six-Year Contract to Provide

question 90

Multiple Choice

The Morgan Company has been awarded a six-year contract to provide repair service to a commercial bus line. Morgan Company has gathered the following data associated with the items needed for this contract:
$\begin{array}{|l|r|}\hline \text { Cost of the Special equipment needed now } & \$ 300,00 \\\hline \text { Working capital needed now } & \$ 80,000 \\\hline \text { Net annual operating cash inflows } & \$ 120,000 \\\hline \text { Equipment maintenance overhaul at the End of Four Years } & \$ 20,000 \\\hline \text { Salvage Value of the Equipment in six Years } & \$ 20,000 \\\hline\end{array}$
The special equipment is in Class 7 with a maximum $15 \% \mathrm { CCA }$ rate. The income tax rate is $40 \%$ , and Morgan's after-tax cost of capital is $14 \%$ . At the end of six years, the working capital will be released for use elsewhere.
- The present value of the total after-tax net cash inflows (outflows) ,excluding any CCA tax shield,in Year 4 is closest to which of the following? (Do not round your intermediate.)

• A) ($7,105).
• B) $23,684.
• C) $35,525.
• D) $38,269.

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Definitions:

Allocentric

An adjective describing perspectives or spatial representations not centered on the observer, but instead based on the environment or objects within it.

Egocentric

A perspective where an individual interprets the world solely from their own viewpoint, often neglecting or misunderstanding others' perspectives.

Three-dimensions

Pertaining to objects or spaces that have height, width, and depth, allowing them to be experienced or described in a fuller, more realistic manner.

Cole and Scribner

Researchers who studied the influence of culture on memory and cognition, demonstrating differences in memory strategies between schooled and unschooled populations.