Arnold Is Acquiring a New Machine with a Life of 5

question 91

Multiple Choice

Arnold is acquiring a new machine with a life of 5 years for use on its production line. The following data relate to this purchase: The new machine would replace an old fully-depreciated machine. The old machine can be sold for $15,000 at the time the new equipment is acquired. The income tax rate is 30%, and the discount rate is 12%. Arnold uses the straight-line method for depreciation on all machines (ignore the half-year convention) .
The present value of the terminal cash flows is

• A) $8,000
• B) $4,536
• C) $1,361
• D) $3,175

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Definitions:

Technology Companies

Firms that produce or provide technology products and services, including software development, electronics manufacturing, and information technology services.

Reported Performance

The presentation of a company's operational and financial achievements over a specific period, typically as stated in its financial statements.

P/E Ratio

The price-to-earnings ratio, a measure of a company's current share price relative to its per-share earnings.

Accounting Methods

Systems and rules used for measuring, tracking, and recording a company’s financial transactions, often influencing how income and expenses are reported.