Regarding the Net Present Value of a Replacement Decision,which of the Following

question 141

Multiple Choice

Regarding the net present value of a replacement decision,which of the following statements is false?

• A) The present value of the after-tax cost reduction benefits resulting from the new investment is treated as an inflow.
• B) The after-tax market value of the old equipment is treated as an inflow at t = 0 (initial investment outlay).
• C) The present value of depreciation expenses on the new equipment,multiplied by the tax rate,is treated as an inflow.
• D) Any loss on the sale of the old equipment is multiplied by the tax rate and is treated as an outflow at t = 0 (initial investment outlay).
• E) An increase in net working capital is treated as an outflow when the project begins (initial investment outlay)and as an inflow when the project ends (terminal cash flow).

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Definitions:

Error Correction

A process in accounting used to rectify inaccuracies or mistakes in financial records and statements.

Inventory Costing Method

A system used to value inventory, including methods such as FIFO (First In, First Out), LIFO (Last In, First Out), and weighted average cost.

Fiscal Year End

The closing date of a 12-month accounting period upon which a company completes its annual financial reporting and determines net income.

Tax Effects

The impact of taxation on investment returns, business operations, or individual income.