Al's Fabrication Shop Is Purchasing a New Rivet Machine to Replace

question 93

Multiple Choice

Al's Fabrication Shop is purchasing a new rivet machine to replace an existing one. The new machine costs $8,000 and will require an additional cost of $1,000 for modification and training. It will be depreciated using simplified straight line depreciation over five years. The new machine operates much faster than the old machine and with better quality. Consequently, sales are expected to increase by $2,100 per year for the next five years. While it is faster, it is fully automated and will result in increased electricity costs for the firm by $700 per year. It will, however, save about $850 per year in labor costs. The old machine is 20 years old and has already been fully depreciated. If the firm's marginal tax rate is 28%, compute the after tax incremental cash flows for the new machine for years 1 through 5.

• A) $2,698
• B) $450
• C) $2,124
• D) $1,620

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Definitions:

True Obedience

The genuine compliance with commands or demands from an authority figure, often studied in the context of social psychology.

Compliance

The act of agreeing with or obeying a request, command, or set of standards.

Reference Groups

Social groups that individuals compare themselves to for the purpose of evaluating their own behaviors, attitudes, and beliefs.

Behavioural Change

A modification in an individual's actions, attitudes, or behaviors due to various factors like intervention or therapy.