Table 11.3 Cuda Marine Engines, Inc. Must Develop the Relevant Cash Flows

question 56

Multiple Choice

Table 11.3
Cuda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five-year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax net profits of $15,000 per year. The firm has a 40 percent tax rate.
-The incremental depreciation expense for year 1 is ________. (See Table 11.3)

• A) $2,250
• B) $7,600
• C) $7,000
• D) $7,950

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Definitions:

Perceptual Process

The perceptual process is the sequence of psychological steps that a person goes through in receiving and interpreting information from the external environment, involving sensation, attention, and interpretation.

Five Elements

In various philosophies, a model of analyzing the world through five basic constituents such as earth, water, fire, air, and ether.

Chi

A concept originating from Chinese philosophy that signifies the vital life force or energy that flows through living beings.

Familiarity

The quality of being well known or easily recognized, often resulting from being encountered frequently or studied extensively.