Macadamia Company Is Considering an Investment in Equipment for $55,000

question 74

Multiple Choice

Macadamia Company is considering an investment in equipment for $55,000. Chocolate uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 40 percent, and the life of the equipment is five years with no salvage value. The expected income before depreciation and taxes is projected to be $30,000 per year. What is the annual cash flow for Year 1?

• A)$33,000
• B)$18,000
• C)$22,000
• D)$22,400

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Definitions:

Drive Gear

Any gear that drives another.

Torque Reduction

A process or mechanism by which torque output, particularly in an engine or drivetrain, is intentionally decreased to prevent damage or improve control.

Driven Gear

A gear that receives power from another gear or rotating component in a mechanical system.

Auxiliary Section

An additional section of a device or system that provides supplementary functions or capabilities.