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:

Support Department

Units within an organization that provide essential services or assistance to the main production or operation departments but do not directly produce revenue.

Cost Allocation

The process of identifying, aggregating, and assigning costs to cost objects, such as products, departments, or projects.

Other Support Department

Units within an organization not directly involved in core operations but that provide essential services or support to primary operations departments.

Variable Costing

An accounting method in which variable costs are charged to cost units and fixed costs are treated as period costs, affecting profit calculation for the period.