Baker Company Is Considering an Investment in a New Metal

question 18

Multiple Choice

Baker Company is considering an investment in a new metal lathe. If the new lathe is purchased, revenues will increase by $5,000 per year and cash operating costs will decline by $10,000 per year. The lathe will cost $60,000 and will be depreciated on a straight-line basis over 10 years to a zero estimated salvage value. Baker's marginal tax rate is 40%. Determine the annual net cash flows generated by the lathe.

• A) $11,400
• B) $9,000
• C) $600
• D) $5,400

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