ABC Already Spent $85,000 on a Feasibility Study for a Machine

question 25

Multiple Choice

ABC already spent $85,000 on a feasibility study for a machine that will produce a new product. The machine will cost $2,575,000. Required modifications will cost $375,000. ABC will need to invest $75,000 for additional inventory. The machine has an IRS approved useful life of 7 years; it is presumed to have no salvage value. It will only be operated for 3 years, after which it will be sold for $600,000. What is the depreciable cost basis of the machine?

• A) $3,025,000
• B) $2,950,000
• C) $2,575,000
• D) $2,350,000

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Definitions:

Mutual Mistake

A legal concept where all parties involved have a mistaken understanding regarding a basic assumption on which a contract is based, potentially making the contract voidable.

Basic Assumption

A fundamental, often implicit, belief that shapes the framework of individual or collective reasoning and actions.

Coercion

The act of compelling someone to act in a certain way by use of force or threats, often rendering any resulting agreement voidable.

Scienter

The knowledge or intent to deceive, manipulate, or defraud, used as a criterion to establish liability in fraud and securities litigation.