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:

Provisional Income

It's the total income a person has, including tax-exempt interest and half of their Social Security benefits, used to determine the taxability of Social Security benefits.

Social Security Benefits

Payments made to eligible individuals from the government, intended to support retirees, disabled persons, and survivors of deceased workers.

Taxability

The condition of being subject to taxes; applicable to income, goods, services, and transactions that can be taxed.

NonTaxable Income

Income that is not subject to taxation by the IRS or state tax authorities; examples include certain gifts, inheritances, and some types of insurance payouts.