Use the Following Information to Answer the Following Question(s)

question 2

Multiple Choice

Use the following information to answer the following question(s) .
A firm is trying to determine whether to replace an existing asset.The proposed asset has a purchase price of $50,000 and has installation costs of $3,000.The asset will be depreciated over its five year life using the straight-line method.The new asset is expected to increase sales by $17,000 and non-depreciation expenses by $2,000 annually over the life of the asset.Due to the increase in sales,the firm expects an increase in working capital during the asset's life of $1,500,and the firm expects to be able to sell the asset for $6,000 at the end of its life.The existing asset was originally purchased three years ago for $25,000,has a remaining life of five years,and is being depreciated using the straight-line method.The expected salvage value at the end of the asset's life (i.e. ,five years from now) is $5,000;however,the current sale price of the existing asset is $20,000,and its current book value is $15,625.The firm's marginal tax rate is 34 percent and its required rate of return is 12 percent.
-If the new machine is purchased,depreciation expense will increase or decrease by

• A)increase $8,000.
• B)increase $6,900.
• C)increase $6,300.
• D)decrease $5,000.

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Definitions:

Tariff

A tax imposed by a government on imported or, less commonly, exported goods, often used to protect domestic industries from foreign competition.

Imports

Products or services that are imported from another country for the purpose of selling.

Roses

A type of flowering plant renowned for its beauty and fragrance, often used symbolically in various cultural contexts.

Equilibrium Price

The price at which the quantity of goods supplied is equal to the quantity of goods demanded in a market.