Nighthawk Inc

question 71

Multiple Choice

Nighthawk Inc. is considering disposing of a machine with a book value of $22,500 and an estimated remaining life of three years. The old machine can be sold for $6,250. A new machine with a purchase price of $68,750 is being considered as a replacement. It will have a useful life of three years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $43,750 to $20,000 if the new machine is purchased. The net differential increase or decrease in cost for the entire three years for the new equipment is:

• A) $8,750 increase
• B) $31,250 decrease
• C) $8,750 decrease
• D) $2,925 decrease

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Definitions:

Random Walk

A statistical theory suggesting that stock market prices evolve according to a random path, making future movements unpredictable based on past trends.

Stock Market

An aggregate for buyers and sellers of stocks, which represent ownership claims on businesses; includes stock exchanges, over-the-counter markets, and electronic trading platforms.

Efficient Markets Hypothesis

The theory that stock prices fully reflect all available information, making it impossible to consistently achieve higher returns.

Stock Price

The current market price at which a share of a company's stock can be bought or sold.