Mac Products Inc

question 9

Multiple Choice

Mac Products Inc. is considering the purchase of a new machine. The estimated cost of the machine is $30,000. The machine is expected to generate annual cash inflows over the next three years as follows: The machine will be depreciated with no half-year convention over its three-year life using the straight-line method and is not expected to have a residual value at the end of its useful life. The company considers income tax effects in all of its capital investment decisions. If the company's income tax rate is 35% and they desire an after-tax return of 14% on investments, the net present value of the new machine is:

• A) $8,965.
• B) $24,056.
• C) $12,338.
• D) $840.

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Definitions:

Credit Column

The column in an accounting ledger where credit transactions are recorded, reflecting increases in liabilities, equity, or revenue, or decreases in assets or expenses.

Service Revenue

The income a company earns from providing services as opposed to selling physical goods, and it is recorded as it is earned in the accounting period.

Balance Sheet Columns

Sections in a balance sheet that categorize assets, liabilities, and shareholder's equity at a specific point in time.

Unearned Revenue

Money received by a company for goods or services not yet delivered or provided; often considered a liability.