Bodacious Company Is Considering the Purchase of a New Machine

question 51

Multiple Choice

Bodacious Company is considering the purchase of a new machine for $80,000. The machine would generate an annual cash flow before depreciation and taxes of $28,778 for five years. At the end of five years, the machine would have no salvage value. The company's cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate. What is the annual net after-tax cash flow (rounded) ?

• A)$23,667
• B)$8,633
• C)$6,400
• D)$28,778

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Definitions:

Reasonable Care

A legal standard requiring individuals or organizations to act with the level of caution and vigilance that a prudent person would under similar circumstances, to prevent harm to others.

Scienter

Intent or knowledge.

Innocent Misrepresentation

A false statement about a fact material to an agreement that the person who made the statement believed to be true.

Mutual Mistake

The result of an error by both parties about a material fact, that is, one that is important in the context of a particular contract.