Eureka Company Is Considering Replacing an Old Computer with a New

question 3

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 present value of the before-tax proceeds that will be received on the sale of the old computer?

• A) $0.
• B) $1,200.
• C) $2,800.
• D) $4,000.

---

Definitions:

Diphtheria

A bacterial infection causing a thick covering in the back of the throat, leading to difficulty breathing, heart failure, paralysis, and sometimes death.

Respiratory Obstruction

A blockage of the airway which impedes the flow of air into the lungs, potentially causing breathing difficulties.

Pathogenic Spores

Microscopic biological particles that can cause disease when they enter a host organism.

Tetanus

A disease caused by Clostridium tetani living in the soil and water; more commonly called lockjaw.