Dexter Smith & Co

question 36

Multiple Choice

Dexter Smith & Co.is replacing a machine simply because it has worn out.The new machine will not affect either sales or operating costs and will not have any salvage value at the end of its 5-year life.The firm has a 34 percent tax rate,uses straight-line depreciation over an asset's life,and has a positive net income.Given this,which one of the following statements is correct?

• A)As a project, the new machine has a net present value equal to minus one times the machine's purchase price.
• B)The new machine will have a zero rate of return.
• C)The new machine will generate positive operating cash flows, at least in the first few years of its life.
• D)The new machine will create a cash outflow when the firm disposes of it at the end of its life.
• E)The new machine creates erosion effects.

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Definitions:

Keating-Owen Child Labor Act

The Keating-Owen Child Labor Act of 1916 was the first federal law in the United States to restrict the employment of children, prohibiting the interstate commerce of goods produced by factories that employed children under certain ages.

Separate But Equal

A legal doctrine that justified and permitted racial segregation, claiming that services could be separate by race as long as they were equal in quality.

Anti-Syndicalism Laws

Laws aimed at suppressing syndicalist movements, typically by criminalizing the advocacy for direct action or industrial conflict for political or social change.

Grandfather Clause

A legal or constitutional mechanism used to exempt certain individuals, typically white people, from new laws or regulations based on ancestry or previous rights, often to bypass laws aimed at racial equality.