ABC Purchased a Machine for $2,575,000

question 42

Multiple Choice

ABC purchased a machine for $2,575,000. Required modifications will cost $375,000. ABC will need to invest $75,000 for additional inventory. The machine has an IRS approved useful life of 7 years; it is presumed to have no salvage value. It will only be operated for 3 years, after-which it will be sold for $600,000. ABC plans to depreciate the machine by using the straight-line method. Assume that the firm's tax rate is 40%. What is the termination (non-operating) cash flow from the machine in year three?

• A) $900,623
• B) $1,109,286
• C) $1,298,114
• D) $879,247

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Definitions:

Operating Activities

Business actions directly tied to the production and delivery of goods and services, impacting the company's cash flow.

Noncash Investing

Transactions involving investments that do not require an initial cash outlay, such as stock-for-stock mergers or asset swaps.

Financing Activities

Transactions and events where cash is raised or repaid to fund the company’s operations or to acquire assets, typically reflected in the financing section of a cash flow statement.

Treasury Stock

Shares that were issued and subsequently reacquired by the issuing company, reducing the amount of outstanding stock on the open market.